5 Key Reasons to Build Your Business Credit

Posted on: December 26, 2014
Tags: Small business credit

Building business credit is just as important as building and taking good care of one’s personal credit. In the business world, a company does not have a consumer FICO® Score. Instead, it has business credit scores, ratings maintained and calculated by business credit reporting agencies.

“Just as your personal credit has a big impact on your financial health, your business credit can help you get competitive business loan rates and terms from potential suppliers,” says Marc Kirshbaum, president of Experian's Business Information Solutions group.

Unfortunately, many small business owners don't even know there is such a thing as a credit score for a business and therefore lose opportunities to improve their own, says Jeff Stibel, CEO of Dun & Bradstreet Credibility Corp.

Many times, small business owners make the mistake of assuming that positive personal credit scores will be enough to obtain good business credit ratings. While lenders and suppliers may initially consider personal credit history, once a business pays its first invoice, it will begin building its own credit history.

Did you know that there is such a thing called a business credit report?

Similar to consumer credit reporting agencies, there are a few major business credit reporting agencies collecting information about businesses. Most notably: Dun & Bradstreet, Experian Business, and Equifax Small Business. Jeff Stibel, CEO of Dun & Bradstreet Credibility Corp. says, “Today, it takes a very proactive approach to building a strong credit score for your business.”

Here are five reasons small business owners should start building business credit today:

Business Financing

Lenders and suppliers use business credit reports to assess the credit worthiness of a business. According to Creditera, in the first 6 months of 2013, Dun & Bradstreet had 45 million business credit report requests and Equifax Commercial had 35 million. If a company’s business credit ratings are high, lenders and suppliers will give favorable terms to purchase on credit. If a business does not have a business credit rating or report, a supplier may require you to pay cash on delivery or ask you to personally guarantee the business purchases.

Supplier Contracts

If a company wants to do business with government agencies or Fortune 500 companies, chances are they will review your business credit reports. For example, one of the steps required in order to register as a Federal Contractor is to obtain a Dun & Bradstreet D-U-N-S® Number. Government and large corporations review business credit scores and reports to make sure their suppliers are reliable and pay their invoices in a timely manner.

Business Separation

Business owners have the unique opportunity to build, maintain and obtain credit both individually and as a business owner. As a business applies for and receives credit, a business credit report will be established. This enables a complete separation between the personal credit reports of the business owner to the reports established by the company itself. In addition, having separate lines of business credit makes it easier to keep business expenses separate from your personal expenses.

Credit Protection

With favorable business credit ratings, a business can obtain financing from companies willing to grant credit without a personal credit check or guarantor. This allows a business to acquire products and services it needs on credit without putting the business owner’s personal credit at risk.

Business Partners

Business credit reports are frequently being pulled by potential business partners so they can find out about a company’s credit history and decide if the business is capable of being a sound business partner. Unlike personal credit reports, business credit reports are available to the public, and anyone – including potential lenders and suppliers – can view your company’s reports. This makes it imperative to also monitor your files on a regular basis.

According to the 2012 NSBA Small Business Access to Capital Study, 20% of small business loans are denied due to business credit. As a small business owner it is extremely beneficial to start the business credit building process so you can maximize your company’s funding potential.

Originally posted on SBA.gov Blog

Small Business Development Center Program of Ohio is funded in part through a cooperative agreement with the U.S. Small Business Administration. The SBDC program is also funded in part by the Ohio Development Services Agency. The Warren County Center is also grateful to our loyal Alliance Partners who provide financial assistance and resources. All opinions, conclusions, or Recommendations expressed are those of the author(s) and do not necessarily reflect the views of the SBA. Reasonable accommodations for persons with disabilities will be made if requested at least two weeks prior in advance. Contact the Warren County SBDC office at (513) 934-4793 regarding these arrangements.