8 Questions About Business Credit: Answered

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You’ve looked over all your options and you’ve decided to apply for business financing. You may be wondering what factors are used to evaluate your business’ creditworthiness.  Your business credit profile is a big part of this evaluation. We get questions about business credit all the time from what is business credit? And how do I find out where it is? To what you can do to positively influence your score?

Here are all the most frequently asked questions we get about business credit, laid out in one nifty article. 

1. What is business credit?

Your personal credit score is a measurement tool used by creditors to determine your creditworthiness as an individual; your business credit profile is a tool used to establish a baseline of  your business’ ability to pay back a loan.

2. How can I establish business credit?

Once your business is established, be it an LLC, partnership, corporation, sole proprietorship etc. your business credit profile is created. Part of your profile is information about your business included in the public record, so the information you shared with the state or county where you registered your business winds up being the beginnings of your profile. Like your personal credit score, creditors can review your score. Unlike your personal credit score, your business credit profile is public, so anyone who wants to can take a look at it.  And, like your personal credit score there are several things that can impact your business credit profile, positively or negatively.

3. How can I create a strong business credit profile?

Building a strong business credit profile should be a priority for any business owner. If you’re a new business think of yourself as a teenager who wants to apply for their first credit card. You’ll likely to have to start small and build your business credit from there.

  1. Many suppliers offer  30, 60 or 90 day credit terms to their best customers It’s important to make sure you always pay on time, because this is an important first step to building a good credit profile. Just make sure they report your good payment history to the business credit bureaus, if not, you’re building credit with that supplier, but not doing anything to positively to impact your business credit profile generally.
  2. A fairly easy way to start building your business credit is to apply for a business credit card and make sure to pay the statement balance every time it’s due.
  3. If you don’t have a business that uses suppliers  that offer credit terms, or your business does not require goods that you resell, you can set up similar terms with big box office supplies stores that offer many of the supplies that most small businesses use, and will often offer business credit to small businesses like yours. Think of the stores that sell cleaning supplies and other office supplies the average business regularly uses.
  4. If you’re a more established business, and have been already following the above three suggestions, you can start by looking for business loans for a small amount that you can easily manage to pay off. (Remember make sure you have an actual purpose for the loan before you take it, don’t just take a loan for the sake of building credit.)

4. Where can I go to see my business credit profile?

There are many places you can go to to view your business credit profile. All of the credit bureaus will give your access to view your score. In fact, because they want to ensure the information they have about your business is accurate, it makes sense to regularly review your profile and they all offer a means to do it.  A perk of business credit is that there is no penalty for inquiring about business credit profile.

5. What are the main business credit bureaus?

The biggest business credit bureaus are Experian, Equifax, and Dunn & Bradstreet

6. How often should I check my business credit profile?

I’m a bit conservative, but I believe it’s a good idea to check up on your profile monthly. It’s the easiest way to catch errors and fix and issues before they go on too long. We tend to impact the things we pay the most attention to and monthly is not too frequent.

7. How can I improve my business credit profile?

If your business credit profile is not where you want it to be don’t worry. You can improve it, it just takes a bit of effort.

  1. Pay off your business credit card often to keep your debt ratio down. Don’t wait for your monthly statement to come, pay it off each week. It’s pretty simple now that you can do it all online or even on your phone.
  2. Pay in full any outstanding debt you have. Owe money to a creditor? If you have the means, pay it off as quickly as possible.
  3. Don’t close any credit accounts you have, the length of your credit history matters.

Fortunately, your business credit profile includes both positive and negative notations about your business credit history. Ultimately, the goal is to have more positives than negatives in your profile

8. Does time in business affect my business credit profile?

Your time in business doesn’t necessarily impact your credit profile, but if your business is still in the idea stage or less than a year or two old, it can make it difficult to get a small business loan. A strong profile that shows a history of your ability to use credit and service debt can positively impact your profile. In other words,, the longer your credit history the more information there is in your credit profile to analyze your creditworthiness—particularly if you have a good track record.

If you have any other questions about understanding business credit reach out to marketing@ondeck.com