What Is A Small Business Credit Score?

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When you finally take that step and make the decision to open your first credit account, you begin the process of building up a personal credit profile.

Your credit profile will show an accurate picture of whether or not you can repay a debt as you continue to add to it.

Similar to your personal credit, your business also has its own scores.

These scores offer a different type of picture, showing the ability of your business to repay debts.

Both your personal and business credit scores can be taken into account when lenders decide whether or not to qualify you for loans, financing, and business credit cards.

Due to the fact that your business credit scores have a significant effect on your financial stability, it is crucial to understand their meaning.

Why Is Your Small Business Credit Score So Important?

Many people argue that having access to credit is the center and livelihood of small businesses.

You may be thinking that since you have great personal credit and a profiting business, you won’t need to use any of your business credit.

However, this is most definitely not the case.

Expansion strategies, as well as start-up costs, tend to be expensive, and all businesses have to submit to the inevitable fluctuations of cash flow, whether positive or negative.

In case you didn’t know, 82% of business failures are caused by inefficient cash flow management, as shown in a study by a U.S. bank.

You also have to realize that using personal credit for building a small business has the possibility of backfiring because you will most likely find yourself making larger purchases and applying for financing opportunities.

These two things can lower your personal credit scores.

Strong Business Credit Can Help:

  • Getting loans with the absolutely best rates. Online lenders and banks can utilize your business credit scores and allow you to prequalify for loans. For instance, the majority of lenders are searching for a FICO® LiquidCredit® SBSS score that ranges from 160 to 300. These lenders search adequately into the depths of your business credit reports to figure out if you will pay back your loans. This likelihood of repayment can affect your interest rates, as well as the amount of capital you are offered.

 

  • Securing stronger trade terms with the suppliers in your particular industry. Businesses that have higher business credit scores often see better payment terms from suppliers and vendors, including net-60 and net-90 day terms. Businesses that feature lower scores may end up with prepay or pay on delivery terms, both of which do not positively affect cash flow.

 

  • Winning contracts with the government or large companies. If you’re looking to do business with Fortune 500 companies or the government, they will more than likely check your business credit, not to mention, require you to meet a minimum business credit score. For instance, if you work as a supplier to Wal-Mart, you are required to have a minimum PAYDEX score equal to 80 or higher.

 

  • Last, but not least, avoiding confusion. By keeping your business profile separate from your personal finances, you prevent confusion. It allows you the opportunity to escape from risky personal guarantees, as well as help you save money in the long run while allowing you to access funds to help your business grow and flourish.

How Can I Establish My Own Small Business Credit Score?

Unfortunately, establishing a positive small business credit score cannot be done overnight. Successful and thriving businesses always result from patient work and planning, so creating high business credit scores follow the same pattern.

Fortunately, many before you have done it, so the steps to improving your credit score are laid out below and happen to be very similar to those that you would use for your personal credit.

1. First of all, pay your bills on time all the time

If you can, pay early.

This will lead you to achieve a score of 80 (out of 100) for the Dun & Bradstreet PAYDEX score, which is one of the more popular and widely known business credit scores.

To get a 100, you actually have to pay 30 days early consistently.

2. Second, establish and keep a good relationship with vendors and suppliers

This not only helps you build a solid and upstanding reputation in your industry, but vendors and suppliers will be able to determine if you have favorable terms for payment.

Encourage your vendors to make reports to the business credit bureaus.

This will allow your business credit score to show off your positive payment history.

3. Third, open and operate a business credit card

By using this card instead of your personal one for business expenses, you can protect your personal credit, build up your business credit, and earn a bunch of bonuses and rewards with business credit cards.

 Just be careful and maintain a low credit utilization in order to hold onto higher credit scores, just like with your personal credit cards.

4. Finally, keep a close eye on your credit

More than 20 percent of business owners end up discovering errors on their credit reports, which lead to them being put in riskier categories.

If you do happen to locate errors, don’t forget to ask for a correction from the reporting agency.

Where Can I Find The Credit Score For My Small Business?

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Well, there are three credit bureaus that can give you a small business credit score, though each one is different.

Whether you’re aware of business credit scores or just figuring out that they exist, you can go straight to the reporting agencies and pay a fee for two of the major scores.

These two include the Dun & Bradstreet PAYDEX Score, as well as the Intelliscore Plus℠ from Experian.

On the other hand, if you don’t want to pay a fee, you can see multiple credit ratings for free if you sign up for a Nav account, where you will receive two ratings without being charges.

Nav will also give you 24-hour monitoring, as well as alerts, seven days a week.