A person’s credit can have a very positive or negative impact on their life. This is the same when it comes to business credit and how a business can potentially be prevented from funding. A person’s credit impacts their ability to obtain housing rentals, mortgages, utility services, auto loans, bank accounts, employment, and much more. The personal limitations that credit can cause for an individual can also have the same impact on what a business is able to obtain and how it can grow.
A credit report becomes a statement of an individual’s ability to pay back debt. A business credit report operates in the same capacity, just that business credit, or business trading is the single largest source of lending in the world. An individual’s credit report is determined through their social security number, where a business’ credit report is determined through their federal tax identification number (FIN), or employer identification number (EIN). It is important to maintain both a high personal and high business credit score in order to be able to acquire funding (The ABCs of Business Credit).
According to the article “Is Bad Business Credit Stopping You From Getting Business Loans” by Marco Carbajo states that in a recent study 63% of business owners looking to acquire funding would pursue banks. The percent of these business owners successfully acquiring funding from banks was 27%. The article states that the access to capital can be the number one roadblock when it comes to growing a business. The good news is that the traditional banks are starting to provide more loans to businesses that do have good credit. The bad news is that a lot of small businesses don’t have good credit.
There are four different major business credit bureaus, Dun & Bradstreet, Equifax Business, Experian Business, and Business Credit USA. It is possible that business transactions that can potentially improve your business credit score are not reported, so it is important that all information is provided to the bureaus so that information is as updated as possible. The article “5 Ways To Improve Your Business Credit” provides a list of what a business owner can do to improve their business credit.
- Make prompt payments. This directly impacts the terms and rates that lenders will provide.
- Increase Credit Limits. Most traditional lending institutes will allow you to request a credit limit increase after 6 months. Even if not planning on using the increased credit, it can help impact your credit ratio.
- Add Trade References. You can manually add trade references to ensure that they are listed on your business credit profile.
- Improve Credit Ratio. Lenders heavily rely on the credit ratio in order to determine how a business is going to repay requested financing. It is recommended that you utilize about 30% of your existing credit lines.
- Keep Business Profile Updated. Make sure areas of excellence stand out.
The ability for a business to grow by expanding marketing efforts, hiring additional staff, purchase or upgrade equipment can all be impacted by their credit. Don’t allow your businesses potential for growth be limited by the inability to obtain funding.
Bray, Jason. 5 Ways To Improve Your Business Credit. Businessfundingamerica.com. 13 August 2015. https://www.businessfundingamerica.com/blog/improve- your-business-credit-score/
Carbajo, Marco. Is Bad Business Credit Stopping You From Getting Business Loans. SBA.gov. 11 March 2014. https://www.sba.gov/blogs/bad-credit-stopping- you-getting-business-loans
The ABCs of Business Credit. Entrepreneuar.com. 24 March 2005. http://www.entrepreneur.com/article/76886