How to Improve Your Company’s Credit Score

Improve Your Company’s Credit Score

If you’re a business owner, you’ve probably borrowed money at some point in time. Whether to launch operations, expand offerings, or make up losses, most businesses — regardless of size — need a little cash injection from time to time. Whether you borrow money is not important, but how you borrow can have significant consequences on the future of your company.

For individuals, borrowing history is aggregated into a credit score that can ultimately make or break loan approval, but for companies it’s not so cut and dry. Many people — unwilling to learn yet another financial system — depend on personal credit to fund their entrepreneurial dreams, but this can have serious financial consequences.

Read on to learn the secret to savvy entrepreneurial borrowing, and why building business credit is a key part of owning a company.

The difference between professional and personal credit

An all-too-common rookie mistake for new entrepreneurs is leveraging personal credit for business expenses. When you depend on personal credit for professional expenses your financial exposure increases twofold: if the business goes south, not only will professional assets tank, but your personal credit report will be at stake too.

Business credit is a way for entrepreneurs to obtain financing on behalf of the company. Whether you run an LLC, corporation or C-corporation, lenders can review and assess your business’s credit separate from your individual score. Not only does this protect your personal record, but also eliminates the potential of a less-than-stellar individual score affecting business interests. Business credit allows you to improve the reputation of your business as a reliable borrower separate from yourself, which is an important part of running a sustainable company.

Building business credit

Business credit is reported by three major agencies:

  • Dun and Bradstreet — The leader of the business credit reporting. This industry juggernaut is widely used to assess a business’s credit worthiness.
  • Business Experian — Experian, known as one of the three major personal credit reporting agencies, also has a commercial credit service.
  • Equifax Business — Equifax is another prominent personal credit reporting agency that offers business credit reporting services.

Over time you will want to practice borrowing habits that prove your business’s aptitude for paying back borrowed money. Some of these steps are similar to the best practices of building personal credit. Otherwise, consider these main factors that lenders also consider before giving money to businesses.

Factors that affect business credit

Half of small businesses fail in the first two years, according to the Small Business Administration. In light of this figure, entrepreneurs should do anything in their power to ensure business prosperity — starting with building credit. The following items are some of the most impactful business credit factors:

  • Lines of business credit — Also known as credit inquiries, a business’s nine-month history of borrowing is a key consideration for most lenders.
  • New lines of credit and utilization — Have you opened any business lines of credit in the past six months, and if so, how many are you actually using? Lenders will look for new credit cards, leases, invoice accounts, loans, etc. and see how much you have borrowed recently.
  • Collections or tax liens — Few credit items are more incriminating than a history of collections. Lenders can assess the likelihood of your business to repay a loan by evaluating any unpaid debt your company might have.
  • On-time payment history — Same as with personal credit, payment history will play a significant role in business credit. Lenders want to look at your report and see proof that your business can repay a loan.

Many of these factors will look familiar to those with experience building personal credit. While many of the same factors play into both business and personal credit, don’t be fooled — not all features of business credit are reminiscent of personal credit.

Business credit goes beyond a score

When a business seeks a loan, approval is not limited to a single score or credit profile. Important business elements such as active years, annual income, bank scores, and industry all play a role. For example, lenders will consider “years active” to see if your business has a sound history of operation. The logic here is that an established company is less likely to default on a loan than a new one.

Depending on the prosperity of your business, these added considerations could be an advantage or disadvantage. For example, a new business with little proof of income or bank activity will need to depend solely on a credit score; whereas, for a more established company, auxiliary factors can help compensate for a less impressive credit score. No matter what, credit will be a primary consideration for potential lenders, but know there are other factors that can come into play.

The importance of checking business credit

One of the best things you can do to improve your company’s credit is to check it regularly. Just like with personal credit, you want to ensure you’re informed about your credit standing and do quality control as needed. There are many reasons to check business credit regularly, such as knowing where you stand compared to others in the industry, having the information to make financial adjustments as needed, and, maybe most importantly, monitoring for mistakes or fraud.

Incrementally improving business credit through regular repayments, favorable utilization, diversification, and other basic financial measures will greatly improve your chances of funding, but your record doesn’t stand a chance against fraud or filing mistakes. Mistakes or unfamiliar credit items might have seemed inconsequential at the time, but an inaccurate credit report quickly amounts significant business credit damage.

Contact for a free personalized credit consultation and audit of all of your business credit accounts, and begin bolstering your company’s credit report.

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