What are Business Credit Reports?

As a small business owner, you know your personal credit history has a significant impact on your ability to secure financing for your business. But did you know that most small businesses also have business credit reports?

While most lenders don’t take your business credit report into consideration for a number of reasons, you might be wondering what they are and what’s included in them.

In this brief guide, you’ll learn the answers to those questions and more!

What are business credit reports?

A business credit report shows your credit history for your business with details about your credit lines, payment history, liens, judgments, and UCC filings. This information is summed up in a business credit score that ranges from 0 to 100.

Do business credit reports matter for funding?

Your personal credit history is generally more important to a lender when you’re applying for a line of credit or small business loans. This information gives potential lenders a good idea of how you’ve handled credit in the past. If you manage your debts well, it will be reflected in a higher personal credit score and a clean credit report.

In turn, having a high personal score can help you secure the financing you need with the most beneficial terms, because you’ve demonstrated that you can repay your debts on time and in full.

Over time, your business will also build a business credit history, but potential lenders don’t usually review it as part of your application. Many times your business credit report isn’t as accurate as your personal credit report and won’t give a lender enough details on your credit experience.

Generally, a good business credit report simply means you don’t have any liens, judgments, or other defaulted loans in your credit history. Accounts in good standing aren’t consistently reported to business credit bureaus. In contrast, creditors do consistently report personal credit repayment history to credit bureaus, which means that your personal credit score is a more accurate indicator of your credit experience.

Your main focus should be to pay your creditors on time and as agreed. Your vendors and creditors may consult business credit bureaus if there’s a payment issue, but otherwise they’ll usually refer to your personal credit score when making credit decisions.

How are business credit reports different than personal credit reports?

Your personal credit history includes information about your personal credit cards and loans. Your payment history is a big piece of your personal credit puzzle, so it will detail   whether payments are on time or delinquent (and if so, by how long) as well as any negatives such as accounts that have gone to collections or personal bankruptcies.

Only you or entities that you permit can view your personal credit report. Your business credit report summarizes your business’s credit history, plus information in the public record. It includes details like:

Your business credit report may include loans you’ve opened and used specifically for your business, lines of credit from suppliers or payments to vendors and other accounts payable In some cases, it may include information that your commercial landlord could report. Unlike your personal credit history, your business credit report is available to anyone who requests it (and pays a fee).

How are small businesses credit ratings scored?

Typical business credit scores range from 0 to 100. As is the case with personal credit scores, a higher business credit score represents lower risk and lower scores represent higher risk. Keep in mind that your business credit score may not accurately reflect your credit history given that positive factors aren’t as consistently reported to the business credit bureaus. Factors contributing to your business credit score can include:

  • Payment history:  Your goal should be to demonstrate on-time payments 100% of the time.
  • Age of credit history: This shows how long your business’s credit history extends. A longer history can work in your favor if it’s a good one.
  • Debt availability and usage: This can show potential creditors how responsibly you manage credit, the different types of debt that your business carries, and how dependent your business is on credit to finance your operations. For example, debt that’s used to consistently cover cash-flow shortfalls will be viewed in a different light than debt to purchase your commercial building.
  • Industry: This factors in the typical risk associated with your industry. Some industries carry higher risks for lenders, vendors, or insurers.
  • Company size: Although this is a lower-impact factor for small businesses, it can influence certain situations. If you’re the only person who works for your business, some creditors may be reluctant to approve credit since all responsibilities fall to you.

Where is business credit information reported?

Two of the major credit-reporting agencies for personal credit information – Equifax and Experian – also have segments that track business-credit information using your IRS-generated Employer Identification Number (EIN) or tax ID number.

The third business-credit tracking agency is Dun & Bradstreet. This agency issues its own tracking number for any business that requests one and it’s referred to as a DUNS number.

Getting a DUNS number for your business is free and helps you establish and build your business’s credit profile. It’s also typically required if you want to bid on municipal, state, and federal contracts or serve as a subcontractor on a government-funded project.

In addition, the SBA requires lenders to use FICO’s Small Business Credit Scoring Service (SBSS) to pre-screen applicants for most SBA loan programs. SBSS scores range from 0 to 300 and consider both personal and business credit scores, as well as other financial information.

It’s helpful to know your SBSS score and clean up any negative marks before your apply for an SBA loan. Your SBSS score is one of many factors that go into a credit decision when applying for an SBA loan.

When and how to request your business credit report

You can request your business credit report at any time, but there are key times when you’ll need it, such as:

  • If you’ve been in business for at least 6 to 12 months and haven’t reviewed your report
  • Before you apply for financing
  • At least once a year, following your initial review to ensure that the information reported is accurate and best reflects your business

You can request a copy of your business credit report from any or all of the three reporting agencies:

  • Experian and Equifax: You can order a copy of your business credit report for a small fee, about $40. And, if you’d like, you can sign up for additional subscription services.
  • Dun & Bradstreet: D&B offers several services related to business credit, ranging from free business credit scores and services to paid subscriptions, depending on your needs. You can also sign up for a free trial of a service called Credit Intelligence to see if it would benefit your business.

In addition, there are non-profit organizations and for-profit companies that can help you track your credit scores, usage, and payment histories, including Nav. Some are available at no cost while others have annual fees.

Easy tips to build your business’s credit score

Strengthening your business’s credit score essentially means following good credit practices. While you may not see the impact of these actions in your business credit report or score, they will benefit your business now and in the future. Here are three tips to get started:

  1. If your business operates as a sole-proprietorship or simple partnership, talk to your accountant and attorney about whether it makes sense to change your business entity.

    For example, operating as an LLC or S-Corp can provide many benefits, including reducing personal liability and risk while establishing a credit history that’s more distinct from your personal history. However, it may not be necessary or advisable for your business, so seek expert advice before you take action.
  2. You should already have a business bank account that’s separate from your personal account, but if not, set one up now. Then, over several months, open 1-3 accounts that establish different types of credit:
    • A business credit card can help you build your credit quickly. Be sure to use it only for purchases that you can pay off in full each month so that you’re not carrying a balance and paying more in interest. Paying the balance off in full each month shows that you can responsibly manage your business debt.
    • If there are large suppliers or vendors that you work with regularly, see if you can establish vendor credit accounts with them. Note that not all vendors/suppliers report to credit agencies – in fact, most don’t – so try to establish an account with one that does.
    • Ask your commercial bank or another responsible lender if you can open a small business line of credit for occasional large purchases or to balance revenue cycles.
  3. Once you have your business accounts set up, they may be reported to business credit reporting agencies, so make sure that you’re using them responsibly. Remember, business credit reports don’t always reflect the positive actions you’re taking for your business, so your business credit report may not accruately reflect all the work you’re putting into building it. Still, it’s important to always make payments on time and always try to pay off more than required.

Pursuit helps small businesses secure financing

Every day, Pursuit works with small business owners who need financing to build the businesses of their dreams, while strengthening their credit for a more secure financial foundation. We offer more than 15 business loans and a small business line of credit for nearly any business need. Contact us today to learn more.

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