AN IMPORTANT NUMBER TO KNOW FOR SMALL BUSINESS FINANCING

smallbusinessfinancingMany small business owners begin their search for capital by seeking out financing options. However, they might be skipping an important step, which is knowing their business’ credit score. Whether it’s a bank, an alternative lender, or a merchant cash advance provider, all will likely thoroughly examine credit scores. If you don’t know your score or understand where it comes from, you may be at a disadvantage when negotiating with lenders. Listed below are a few credit score tips to help ensure that your business is in the best position possible when seeking additional capitaL.

Know How To Find Your Score
First, you should know where to find your score. Experian, Dun & Bradstreet, and Equifax are the three primary agencies that issue business credit scores. They determine your business’ score based on information they receive from different sources. It is important to note that scores can vary greatly based on the information each agency receives, so you should check each score separately in order to get the full picture of what potential financing partners are seeing when they review your business. You can request your business score from each agency’s website. Unfortunately, it is not free to check your scores, so be prepared to pay a fee of $30-$100 per agency.

Understand How Agencies Determine Business Credit Scores
In order to understand how each score is determined, you should know what each agency is looking at. Experian uses credit, public records, and demographic information to determine your business’s score. Dun & Bradstreet uses the PAYDEX score, a numerical indicator that ranges from 1-100, assessing how a company paid its bills over the past year. To receive a score, a business must first establish a business credit file with the agency. Equifax puts a particular focus on small businesses, utilizing payment history data from the Small Business Financial Exchange. They can also take information on business demographics and public records into account.

It’s important to note that while banks are required to submit financial activity for your personal credit score, it’s optional for suppliers to submit data to business credit agencies. This means you need to ensure the data these agencies receive is accurate and up to date. The Small Business Administration recommends that you monitor your report on a regular basis to remove inaccuracies, just like you would with personal credit. If you anticipate that your business will need an injection of capital in the future, pay special attention to your scores prior to when you plan on applying for it.

Recognize That A Good Score Will Help Your Business
A good score can benefit you and your business in many ways. So what qualifies as a good score? The SBA cites a business credit score of 75 or more as the ideal range. A score within this range can open many doors when it comes to financing. Potential financing partners who pull a good business credit report will be able to see the financial stability of your company, which makes them feel more secure about doing business with you. This could also help when you are negotiating rates and prices with vendors and suppliers, potentially saving your business a significant amount of money over time.

A high business credit score also protects your personal credit score by taking the strain off of your personal accounts. If you’re relying only on personal accounts, your credit usage could quickly become overextended with the additional capital it takes to run your business. Additionally, frequent credit inquiries can damage your personal credit score, but those made on business accounts do not since obtaining financing can be seen as a positive way to grow your business.

Continue To Improve Your Business’ Score
Now that you understand how your score is determined and what it means, you can focus on improving it. First, you need to use your credit in order to establish credit history. Utilize the credit you have and build on it while keeping debt low to mitigate the appearance of risk. The amount of business debt you carry is an important factor in determining your creditworthiness. Make sure to make timely payments on the debt that you do carry. Paying on time will have the most impact on your score and will also help you save money by avoiding late fees. Once you’ve established your credit, track it by checking each score at least twice a year. At this time make sure your profiles are up to date and all relevant payments are being tracked.

The importance of your business credit score cannot be disregarded. Good business credit scores can help you establish financial stability, protect your personal scores, and can help access capital. If you take the time to pull your credit and learn how it is determined it makes it much easier to maintain a good score and continuously improve upon it.

If you have questions about your business’ credit score or financing for your small business, please call our office today.

Source:
Salters, J. (2015). The #1 Number To Know For Small Businesses Seeking Financing. Retrieved from http://www.huffingtonpost.com/jim-salters/the-1-number-to-know-for-_b_8186126.html

As a CPA, Accredited Small Business Consultant and Advanced Certified QuickBooks ProAdvisor, we specialize in working with small business owners and provide tax, accounting, financial analysis and management, and small business consulting services. We can help you to start, manage, and grow your small business. Call us today at (727) 391-7373 or visit us at http://www.LStortzCPA.com.

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