Don’t Let Your Business Credit Report Trip Up Your Loan Prospects

Of all the annoying little things that can trip you up when applying for a business loan, don’t let awareness of what’s on your business credit report be one of them. Often overlooked, your SMB credit report should be checked on a regular basis. Not unlike how your individual credit report determines your creditworthiness as a consumer, your business credit report functions in exactly the same manner. 

However, it’s important to note, one of the major differences between consumer and business credit reports is that with a business report, anyone can purchase a copy, at any time, to determine the risk level of potentially doing business with you. 

That fact, more than any other, should stop you dead in your tracks regarding checking and ensuring your business credit report is updated and accurate. If this is something lenders and service providers can access at any time, it certainly behooves you to make sure they are seeing reasons why they’d want to do business with you—not reasons why they wouldn’t.

For those unaware of exactly the kind of information a business credit report includes, here’s a brief look: 

• Basic company information, such as number of employees at the business and annual sales figures
• Number of subsidiaries
• Any historical data on the business
• Industry classification
• Any published filings, such as judgments or liens
• Payment and collections history
• Number of accounts and all reporting details

This information is then used by potential lenders to decide myriad things, such as the funding amount you’ll receive, repayment terms, interest rates, how your customers and vendors view your business, and insurance premiums you’ll pay. 

All of the above would lead you to believe that small business owners, in large numbers, are not only aware of their business credit scores, but accessing and checking them all the time, right? 

Shockingly, the answer is a resounding no.

According to a survey by Manta, an online community for small business owners, a solid majority (72%) of small business owners are not aware of their business credit score. It also found that almost 60 percent of respondents didn’t even know where they could access their scores.

Furthermore, the survey discovered that less than one-third of the 2,900 SMB owners queried have business accounts tied to a line of credit. When you consider that a business line of credit offers small business owners access to financial resources for short-term needs, this is another surprisingly low number. 

Taking a Look

The Manta numbers are head scratchers for sure, but let’s start with how to gain access to your SMB credit report in the first place. 

There are three major business credit bureaus: Dun & Bradstreet, Equifax and Experian. You’ll find various services on each site offering ways to check and stay updated on your business credit score. Whether you sign up for a one-time report or subscribe to ongoing monitoring, these are the three places to go.  

Another great reason for checking your business credit report is you may find inaccuracies that could keep you from obtaining loans or credit accounts with vendors. In fact, finding errors on these reports is not rare. 

Common errors include: your business being filed under an incorrect SIC code, the four-digit number used to classify the industry you’re in; mixing business reports, as businesses with similar names occasionally have their information mismatched; and the number of years you’ve been in business. The latter is sometimes reported as a lower number. Every year you’ve been successfully running your business matters to lenders, and the longer you’ve been around, the better. 

Scoring Methods

Your business credit score is assessed using a different ranking system than that used to determine your individual credit score. The aforementioned three business credit reporting agencies calculate SMB scores on a different scale that they explain before you sign on. 

From examining the methodology used by all three of the major business credit bureaus, there are five loan requirements that you should focus on.

• Your Business Balance Sheet, as this provides potential lenders with a quick look at the assets you have on hand, along with what your outstanding debts are.
• Personal Credit Score provides lenders a more complete look at your eligibility, as many small businesses don’t typically have a lengthy business credit history to look back upon. It stands to reason that a high personal credit score is a good indicator you’ll be a trustworthy business borrower as well.
• Profit & Loss Statement - Your P&L reveals how much money is coming in, how it’s being spent, and how much is left over a given time period. There is perhaps nothing more indicative  than your cash flow to determine your ability to sustain a monthly payment schedule. 
• Time in business - As stated earlier, the longer the better, for everyone involved. Seeing as almost one in five small businesses fail within the first year, your staying power proves your company can withstand some financial bumps in the road. 
• How you use the funds - It certainly stands to reason a lender would want to know what your plans are for the money you’re borrowing. You’ll find many a lender will have very strict requirements about how the money can be used, as they want to see you’re making a solid investment in the future of your business.  

While a solid business credit score won’t guarantee you’ll secure a loan, at the very least, you’ll be aware of what areas may be holding you back so you can zero in on those and improve your chances for success. 

Above all, no one knows whether or not your loan can be paid back better than you. Never borrow on a wing and a prayer. If you’re looking to have a more in-depth conversation about your lending options, Original Funding is happy to help you take the first step here.