Building a Strong Business Credit Profile: What You Need to Know

When applying for any type of loan—whether it’s a credit card, line of credit, business term loan, or mortgage—having a strong business credit profile is crucial. While many small business owners focus on personal credit, lenders assess both business and personal credit profiles. A strong business credit profile can help your business secure financing at better rates, and it’s an essential part of maintaining financial health.

What Does a Business Credit Score Say About Your Business?

Your business credit profile is a reflection of how likely your business is to repay its debts on time. It helps lenders evaluate the risk associated with lending to your business. The better your business credit score, the more likely it is that you will be approved for financing with favorable terms.

Your business credit profile is built from various sources, including:

• Credit obligations: Information about loans and credit extended to your business by lenders or suppliers.

• Legal filings: Public records such as liens, judgments, lawsuits, or delinquent taxes.

• Public records: These can include company formation records, business licenses, and any negative information like tax liens or bankruptcy.

Lenders will check your credit profile from one or more of the major business credit bureaus to determine your creditworthiness.

What Influences Your Business Credit Profile?

You have control over your business credit profile by managing how you pay your bills and obligations. The longer you maintain a solid record of on-time payments, the stronger your business credit profile will be. Here are the key components that go into your business credit profile:

• Payment history: This includes information about your business’s accounts with suppliers, utilities, credit cards, and other creditors. It shows how well your business has been able to make timely payments.

• Public records: Information about your business from city, state, and federal records, such as business licenses, tax reporting, property ownership, and any negative items like tax liens, lawsuits, or bankruptcy.

These factors are collected by credit bureaus and processed to generate a score. A higher score reflects a better financial condition and capacity to manage debt, while a lower score suggests higher risk.

Major Business Credit Bureaus

Your business credit score is generated by several credit bureaus, including:

• Dun & Bradstreet

• Experian Business

• Equifax Business

• Business Credit USA

Each of these agencies uses its own scoring method, and the information provided may vary from bureau to bureau. Unlike personal credit scores, which follow a universal scoring range (300 to 850), business credit scores can vary depending on the bureau, using scales like 1-100 or other proprietary methods.

Note: The data used by these credit bureaus is not always 100% accurate. Vendors aren’t required to report payment history, and errors may occur. However, these bureaus are open to correcting errors, so if you notice any discrepancies, you can contact them to have it rectified.

How Does a Lender Get This Data?

Lenders rely on the information provided by the credit bureaus to evaluate your business’s creditworthiness. This helps them make an informed decision about whether to extend credit. If you’re applying for a loan, they will likely consult your business credit profile along with your personal credit score. A lower score may result in higher interest rates or even a declined loan application.

How Your Business Credit Score Is Used

Lenders use your business credit score to assess the risk involved in lending to your company. A lower score signals a higher risk, which may result in higher interest rates or even a denied loan application. A good credit profile, on the other hand, can lead to better loan terms and interest rates. Your business credit profile may also affect other aspects of your business, such as:

• Trade relationships with suppliers

• Insurance premiums

• Leasing agreements

A strong business credit profile can open doors to more favorable business opportunities, while a weak one can limit your financing options and increase the cost of credit.

Track and Improve Your Business Credit Profile

Knowing your business credit profile is vital, but ensuring that it’s accurate and up to date is equally important. Here’s how to manage and improve your business credit profile:

1. Check Your Credit Report: Visit the major credit bureaus like Experian or Dun & Bradstreet to check if your business already has a credit report. If not, you’ll need to verify your business information.

2. Monitor Your Report Regularly: Make sure your credit report is accurate. Mistakes like incorrect business identification or negative accounts can hurt your score.

3. Fix Errors: If you find discrepancies, report them directly to the credit bureau. Correcting errors can take time, but it’s crucial for maintaining an accurate score.

How to Improve Your Business Credit Profile

If your business credit profile is lacking, here’s how to strengthen it:

• Register as a Legal Entity: Make sure your business is legally registered as a corporation, LLC, or partnership, and that you have a Tax Identification Number (TIN).

• Pay Your Bills On Time: Always make payments on time to build a solid payment history with vendors and creditors.

• Engage with Credit Agencies: Register your business with the major credit bureaus to ensure they’re aware of your business and its activities.

• Use Vendors Who Report to Credit Bureaus: If your vendors don’t report your payment history to the credit bureaus, it won’t appear on your credit report. Make sure to engage with vendors who do.

To Sum Up

A strong business credit profile is vital for securing financing and fostering good relationships with suppliers, landlords, and other partners. By regularly monitoring your credit report, ensuring it’s accurate, and maintaining a good payment history, you can improve your chances of securing the funding your business needs to grow. Taking these steps now can pay off in the long run and ensure your business has access to the capital it needs when opportunities arise.