YOUR GUIDE TO
UNDERSTAND
ING
SPONSORED BY YOUR GUIDE TO UNDERSTANDING BUSINESS CREDIT
BUSINESS
CREDIT
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SPONSORED BY YOUR GUIDE TO UNDERSTANDING BUSINESS CREDIT
YOUR BUSINESS
CREDIT PROFILE
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SPONSORED BY YOUR GUIDE TO UNDERSTANDING BUSINESS CREDIT
●● The three questions most lenders will ask about you and your business ●● The
two factors that have the biggest influence on your business credit profile, and ●●
The five things you can start doing today to build a strong business credit profile.
You might be surprised at how simple some of these tactics are and how quickly you can
build a business credit profile that will help you borrow the money you need.
UNDERSTANDING YOUR PERSONAL
CREDIT PROFILE
Every small business owner has two credit profiles:
1. Your personal credit profile, expressed in your personal credit score
2. Your business credit profile, expressed in your business credit score
Regardless of which credit bureau is measuring your personal credit profile, the scores are
very similar.
WHAT MAKES UP MY
INTRODUCTION
In collaboration with our partners from OnDeck, the leader in online lending, we PERSONAL CREDIT SCORE?
developed this guide to help small businesses secure financing in a fair, efficient and There are five factors that make up your personal credit score.
transparent manner so that they can get back to what they do best: growing their 1. Payment history (35%): Do you pay your personal bills on time?
businesses, hiring workers and fueling the economy.
2. Amount owed (30%): This is the ratio of your available credit to how much you use. If
Whether your business is an early-stage startup or an established company, accessing you have a personal credit card with a $5,000 limit, and you regularly use all $5,000 of
the financing you need to fuel expansion or provide working capital is essential to it, that will negatively impact your score even if you pay the bill in full every month.
success. But in order to get that financing, you need to understand how your business Credit bureaus prefer to see you using only 15 to 20% of your total available credit.
credit profile works.
3. Length of your personal credit history (15%): It’s tempting to cancel credit cards that
How strong is your business credit profile? Did you even know that your business has a have a blemish on their history, but it’s not a good idea.
credit profile? If you didn’t—or if you don’t understand how your business credit profile
works—you’re not alone. In this eGuide, we’ll explain: 4. Type of credit used (10%): Mortgages, car loans and other personal loans are great
opportunities to demonstrate creditworthiness. However, lenders also want to see
●● How your business credit profile and personal credit score affect your ability to get how you handle revolving credit, like a credit card. A broad mix of credit types will help
financing for your small business boost your credit score.
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5. New credit inquiries (10%): When you shop for a car or mortgage or apply for a new You shouldn’t borrow money or establish business credit accounts just to establish them,
credit card, each of these inquiries negatively affects your credit score. Try to limit of course—but you should do so when it makes sense for your business and when it will
these inquiries. help build your business credit score.
WHY DO LENDERS WANT TO KNOW MY WHAT MAKES MY BUSINESS CREDIT
PERSONAL CREDIT SCORE? PROFILE DIFFERENT THAN MY
Before making a business loan, every lender has basically three questions:
PERSONAL CREDIT PROFILE?
1. Can you repay a loan? Your personal credit profile is expressed in a score – one that you probably know. Your
2. Will you repay a loan? business credit profile is more complex. Each credit bureau looks at the information a bit
3. What will you do if something unexpected happens? Will you still find a way to make differently. There isn’t one overall score, but there are several that create your business
your loan payments? credit profile.
Your business credit profile includes:
When lenders assess your creditworthiness, they start with your personal credit score
1. General information about your business that is part of the public record, such as your
because it’s readily available and easy to check. They also use it to get insight into how you
business address, years in business and your industry
will likely treat a business loan.
Unfortunately, although your personal credit score reflects how you meet personal credit
obligations, it’s not always the most complete or accurate way to determine how you will
meet your business obligations. That’s where your business credit profile comes into play
and why it is so important.
UNDERSTANDING YOUR BUSINESS
CREDIT PROFILE
Some business owners make it a point to pay cash for everything, rather than borrow
money or establish a line of credit. They’re proud of not taking on debt. But in reality,
always paying cash may not be the best move for your business.
Why? If you never borrow money or use credit, when credit bureaus pull up your business
credit report, there won’t be anything to see. If a lender has ever told you that your credit
profile is “thin,” they mean it doesn’t contain enough data for them to evaluate your
creditworthiness.
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●● PAYDEX score: This score ranks a business up to a maximum of 100 points based on a
variety of factors. D&B’s credit report will also show whether your business’s PAYDEX
score is improving or declining.
●● Company overview: This includes publicly available information about your business,
such as the owner’s name, year started, number of employees and the business’s SIC
code.
2. Information about the credit relationships you have with your suppliers and vendors,
including your utilities and lease payments
3. Your payment history with any current business loans and business credit cards
The two biggest factors influencing your business credit profile are your credit history and
the public record.
WHERE CAN I SEE MY BUSINESS
CREDIT PROFILE?
It’s important to know what your business credit profile looks like and to make sure it’s
accurate. Although there are others out there, the three biggest business credit reporting
bureaus are Dun & Bradstreet (D&B), Equifax and Experian.
If you view a D&B credit report, for example, here’s some of the information you’ll see
about your business:
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●● Credit score percentile: D&B will compare your business’s credit score to that of
millions of other businesses to show where you stand in respect to other
businesses in the region, other businesses in the industry, other businesses of
similar size and other businesses that have been operating for the same number
of years.
5 STEPS TO BUILDING A STRONG
BUSINESS CREDIT PROFILE
Now that you have an idea of what your business credit profile contains, how can you
start building and improving it? Here are five simple steps.
STEP 1:
KNOW YOUR BUSINESS QUESTION
CREDIT PROFILE. HOW OFTEN SHOULD I CHECK MY
Regularly review it to make sure it’s accurate. BUSINESS CREDIT PROFILE?
●● Public filings: This will show if your business has any lawsuits, judgments or liens Correct any errors you find. Visit each of ANSWER against it as well as any
bankruptcies. This information is taken from public records. the three major business credit reporting
●● Line of business: The D&B report will specify the industry you’re in, including your agencies to get your business credit report. Check at least quarterly. Many credit
experts business’s NAICS code. It’s important to make sure this code is accurate, so your Some of the agencies charge for this, but it’s suggest that you check your
profile monthly— business isn’t ranked as being in a riskier industry than it really is. D&B also ranks the well worth it. especially if you’re trying to establish or
industry’s Financial Condition and the business’s Commercial Credit Score Class. ●● Dun & Bradstreet strengthen your business credit profile. All three
●● Financial stress score: On a scale of 5 (high stress) to 1 (low stress), this measures ●● Equifax credit bureaus offer programs that give you whether your industry
in general is under financial stress. For instance, in 2008, any ●● Experian regular access to your business credit profile.
business in the automotive industry was under financial stress.
Although all three credit reporting agencies report the same basic information, each
has a different perspective. For example, Dun & Bradstreet focuses primarily on your
●● PAYDEX trend chart: This shows your company’s PAYDEX score for the past 3 months,
relationships with vendors and suppliers, while Equifax focuses on what banks and
compared to the PAYDEX score of all businesses in your industry, as well as a trend for both
lenders say about you. To get a well-rounded view of your business credit profile, it’s
scores.
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best to check all three.
●● Credit capacity summary: Your business receives an overall rating based on factors
including the size of the business, annual revenues, net worth, cash flow and average
credit usage.
STEP 2:
●● Credit limit recommendation: D&B will recommend a conservative limit and an aggressive DON’T USE PERSONAL CREDIT FOR BUSINESS PURPOSES.
limit. Your lender may or may not follow these recommendations, but they do use the
Doing so causes two problems. First, it won’t help you build your business
information to evaluate your creditworthiness.
credit profile. Second, it can actually hurt your personal credit score. Why?
●● Credit score summary: This predicts how likely your business is to become severely Business expenses are typically bigger than personal expenses, which can
delinquent on paying its bills, based on factors including the average risk level of your drive your credit usage ratio up. If you use more than 15 to 20% of your
industry, financial ratios, proportion of past due balances to total amount owed, evidence of available personal credit, it could negatively affect your personal credit
open suits and judgments and the proportion of slow payments in recent months. score.
WHAT IF MY BUSINESS CREDIT
PROFILE ISN’T PERFECT?
There is no quick fix for a poor business credit profile. However, if you start
implementing the five steps above today, within the next 12 to 18 months, you’ll see
major improvement in your business credit profile.
CONCLUSION
Your business credit profile is important at every stage of your business’s life cycle, but
especially when you’re seeking a business loan. There are four key questions to ask
yourself when looking for a small business loan:
1. Why do I need a loan?
STEP 3: QUESTION 2. Which loan terms best fit my situation?
ESTABLISH TRADE CREDIT WHAT IF I’M A CONSULTANT AND 3. How much money do I really need?
ACCOUNTS WITH SUPPLIERS. VENDORS
DON’T HAVE WHO OFFER TRADE 4. What does my business credit profile look like?
This is easier to do in some industries than CREDIT?
ANSWER
in others, but in general, vendor credit is Home Depot, Lowe’s, Staples, Office A strong business credit profile doesn’t guarantee you’ll get a loan, but it does give you
relatively simple to get. Instead of putting more options, including nonprofit micro-lenders, the SBA, banks, credit unions, online
purchases on your business credit card, similar
Max andbusinesses all sell products that
lenders and loan matching sites.
ask if the vendor offers 30-, 60- or 90- business owners use regularly—and
small
day terms. As long as you stay current on offer
theybusiness
all credit. Open a credit
payments, and those vendors report to the the business’s
account in name, and establish a
credit bureaus, using vendor credit is the regular
history of purchases and
single easiest way for a young business to
build a business credit profile.
payments. 2
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Be aware of what credit bureaus have to say about your business from the very beginning. Work to establish your business credit profile, monitor it and improve it. The small amount of
time and money this takes is well worth the result: knowing as much about your business
STEP 4: credit profile as potential lenders do.
MAKE SURE YOUR SUPPLIERS REPORT YOUR GOOD CREDIT
BEHAVIOR TO A CREDIT BUREAU.
FOR MORE INFORMATION ABOUT THE WORLD OF ONLINE LENDING, VISIT:
Not all companies do this automatically, so you need to ask if they do. If they don’t
report the information, ask if they can start doing so. Otherwise, no one but the vendor BUSINESSLOANS.COM can see your history of on-time
payments—and you aren’t building a strong credit
profile with the credit bureaus. SMALL BUSINESS FINANCING SIMPLIFIED
