Business Credit Score: Key Points for Small Business Owners

Business Credit Score: Key Points for Small Business Owners

Personal credit scores are very important: They’re part of what lenders look at when determining your eligibility for loans and the interest rates that you’ll get. But what about your business credit score? Is that something a lender will consider with your loan application?

Yes! As you’re growing your business you’ll need to be aware of how your actions impact your business credit score. Read on to learn what a business credit score is and how to build and improve yours.

What is a business credit score?

A business credit score measures the creditworthiness of your business based on its interactions with creditors. Like your personal credit score, there are many factors that go into determining your business credit score, like payment history and total number of accounts.

From the moment you launch your business, you begin to build your business’s credit history. Your business credit score helps potential creditors understand how you handle debt and your credit accounts. A strong business credit score can help you qualify for better loan terms, higher loan amounts, and better terms with your vendors and insurers.

What’s the difference between a personal credit score and a business credit score? Your personal credit score applies to you, the individual, while your business credit score applies to your business as a whole.

When is a business credit score considered?

Lenders, vendors, insurers, and landlords are the kinds of potential creditors that may look at your business credit score.

They use it to decide whether to loan your business money and to determine your business’s payment terms. For example, if your business has a higher credit score, a vendor may offer you 60-day payment terms for goods and services that you purchase from them. This can make a tremendous difference for your day-to-day working capital needs and long-term planning.

The SBA also 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 negative marks prior to applying for an SBA loan. It’s also important to know that the SBSS score is only one of many factors that go into a credit decision when applying for an SBA loan.

How to build a strong business credit score

From the time you open your business banking account, you start building your business credit score. Depending on how you formed your business, your business credit score will be tracked by:

  • An employer-identification number (EIN) that you’ll get through the IRS if your business is required to do so. You can register your EIN with credit-reporting agencies (Equifax and Experian are the most well-known among them) and/or with the business-tracking agency Dun & Bradstreet (D&B). These agencies will also report your business credit score to potential creditors.
  • Your social security number, if you operate as a sole proprietor or single-owner limited liability company (LLC).

A strong business credit score starts with your commercial banking relationship. If your business shows steady positive cash flow and reasonable cash reserves, and you’ve never bounced a payment, then you’re laying a solid foundation. Every business-related financial relationship that you have from that point on can help build your score. As with personal credit scores, you have to go beyond the basics to increase your score. Here are a few ideas to improve your score:

  • Opening a business credit card or a business line of credit is a great way to build your business’s credit history. Just like with your personal credit accounts, it’s important to stay well within your credit limits and make all your payments on time.
  • If your vendors offer credit terms, apply with them and be sure to pay on time and in full as agreed. Be sure to check the terms of your agreement. These will vary from vendor to vendor and likely won’t be the same as the payment terms you may be used to from personal creditors.
  • Utility companies, landlords, and vendors can help you build your business credit score, too, as long as your payments are on time and in line with any terms you’ve set up.

Business credit scores: Typical ranges and criteria

Except for the SBA’s SBSS score, typical business credit scores range from 0 to 100. But this can vary between agencies, so learning how each agency interprets them is important. Factors contributing to your business credit score can include:

  • Payment history: Like personal credit scores, this is the most important factor to your business credit score. 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 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 the business, some creditors may be reluctant to approve credit since all responsibilities fall to you.

Obtaining your business’s credit score

Make a habit of regularly monitoring your business credit report. You’ll want to check for any inaccuracies, and you can also find opportunities to add trade accounts or other credit activity that can be favorable. There are a couple of different ways to obtain your business’s credit score:

  • You can request a copy of your business credit report from D&B, Experian, and Equifax. Just keep in mind that your business will likely need at least six months of business history for a credit history to be established and there may be fees for your report.
  • 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, so do your research and figure out which one works best for you.

What other factors go into getting approved for a business loan?

At the end of the day, while a strong business credit score helps with your loan application, most small business lenders rely first and foremost on:

  • the cash flow and collateral of your business
  • whether or not you have outstanding tax liens or judgments
  • your personal guarantee as the business owner
  • your personal credit score

A small business loan from Pursuit can help your business grow

Pursuit is a community-focused lender that works with small businesses like yours to get the funding you need to grow. With more than 15 different loan options you’ll be able to find the funding that fits your needs.

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