Knowing and understanding what your business credit looks like is crucial for any business owner. More and more businesses are financing and leasing equipment among other items to keep cash flow alive in their businesses. Knowing how your business credit looks can help make credit approvals quicker and easier, it can help you obtain a lower rate of financing, and it can help you promote your company in the best light possible the first time around. Most important, by knowing what your business credit looks like and keeping it satisfactory, it could prevent your business from experiencing what I call a business heart attack.
In simple terms, business credit can be broken down into four main areas: business reports, personal credit bureau reports, bank and trade references and financial information. I am only going to talk about the first three areas in this article.
Business reports such as Dun & Bradstreet, Experian, Manta and Paynet are used by banks and finance companies to verify how long your business has been operating, who the owners and officers of the company are, how many employees you have, your past payment trends, public filings such as suits, liens, judgments, bankruptcies or UCC filings and sometimes financial information. Business owners should get a copy of their own business report, read through it to understand what it says, and be ready to make any corrections as needed. If your business does not have a business report, it will be important for you to be able to verify your business in directory assistance or yellow pages, verify your company’s website and if you are a corporation or LLC verify your secretary of state information. If any or all of these are not available, you may have to provide additional information such as a business license, copy of your phone bill, or a business tax return.
There are three reporting agencies for personal credit bureau reports: Equifax, Experian and Trans Union. Not all bureaus report the same information or report that information in the same way. I encourage all business owners to get and keep a current copy of your personal credit bureau report and know who is reporting what on there. Credit bureau scores range from 300 to 900 and gives details on how you currently pay your bills, how you have paid your bills in the past and what financing you have used in the past or are currently looking for now. Some of the items that will show on your credit bureau report include installment debts such as mortgages and autos, credit card debt, any payments made over 30 days late in the past, collection accounts, chargeoffs, public filings such as bankruptcies, suits, liens, judgments and inquiries (shows who has pulled your credit and when). Most banks today want your personal credit bureau score to be over a 700 to 740 in order to loan you money. If your credit falls below that, there are things you can do to help increase your score. First and foremost, pay your bills on time and do not over extend yourself. It is also a good idea to pay down on your credit card balances. Credit experts recommend keeping your balance on every credit card to 10% or below the maximum credit limit. Do not close credit cards you do not use, keep them open so they will allow more availability on your total credit card balance. Limit inquiries by limiting who pulls your credit bureau and why. When you start looking for financing, never “shotgun” your application out by letting several companies pull your credit. Errors can report on your credit bureau report which is why it is important to check your credit on a regular basis and quickly fix any inaccuracies or errors.
Every business should have a current bank and trade reference sheet available. This reference sheet should include your business legal name, address, contact information such as phone, fax, email and website, a list of the officers, your tax ID number, your secretary of state information if applicable, your DUNS # (from your Dun & Bradstreet report) if applicable, your main banking institution listed with account number(s) and contact, 2-3 of your major trade references (who you purchase supplies from on a regular basis) and 2-3 comparable credit ratings (who you have financed things through in the past; this could be from your bank or outside bank/leasing companies).
To help your business obtain the financing you need when you need it, have a business financial package ready to go that includes a write-up of the history of the business, your bank and trade reference sheet I explained above, a description of the collateral you are trying to finance including any cash flow savings it will bring to your business and a copy of the quote or invoice from the vendor.
If your business would like a free 15 minute consult on how to build your business credit, please contact me at firstname.lastname@example.org or 877-237-7287. Don’t let your business credit cause a heart attack for your business!