What is a Business Credit Score?
A good Business Credit Score can help you obtain capital to grow your business or borrow funds to survive an economic downturn. Unfortunately, most of the information utilized to determine your business credit-worthiness is voluntarily obtained so the credit bureaus may never receive all of the information needed to accurately assess your true business credit score. In fact, if you are not aware of your business credit score, you could go years increasing your business credit without any positive additions reported to the credit bureaus.
A Business Credit Score is similar to a FICO or personal credit score but measures a company’s ability to payback debts instead of an individual borrower. This information is tracked using your FIN (Federal Tax ID), also known as your EIN (Employer Identification Number). Unlike a FICO, a business credit score ranges from 0 to 100 with anything over a 75 considered excellent. Here is a simple breakdown of what your score means:
- 80-100: Low risk of late payments
- 50-79: Medium risk of late payments
- 0-49: High risk of late payments
The major reporting agencies for Business Credit Scores are Dun & Bradstreet, Experian and Equifax. According to Experian, your Business Credit Score is calculated by a statistical algorithm, designed to determine risks based upon the following:
- Credit: Number of trade experiences, outstanding balances, payments, credit utilization and credit trends.
- Public Records: How soon, how much and how often for liens, judgments and bankruptcies.
- Demographic Info: Years in business, SIC (Standard Industrial Classification) Code and size of your business.
This information is obtained by collecting the following information about your business:
- Credit Obligations to you suppliers and lenders.
- Legal filings.
- Company Background Information from public records.
- Collections proceedings.
- Comparative analysis of payment performance with other businesses of the same size in the same industry.
Establishing a great Business Credit Score:
Don’t make the mistake of using your personal information for establishing your business and applying for business credit, leases or loans. By doing so you not only fail to build a good Business Credit Score, you can detrimentally affect your personal credit score and debt-to-income ration when applying for necessary personal expenditures like a home loan. To establish your business credit profile and a great Business Credit Score start with the following:
- Form a Corporation or LLC to operate your business. Contact the IRS to obtain a EIN.
- Register with the business credit bureaus:
- Make sure that your business meets the credit market requirements including having a business licenses and dedicated phone number.
- If your are seeking a traditional business loan, be prepared to provide financial statements and possibly even a business plan.
- Manage your debt and repayments to ensure that you don’t continue to negatively impact your score.
What can you do now with a low Business Credit Score?
Fortunately, there are options available to businesses with a low credit score that can help you quickly obtain funding for expansion or covering expenses during economic downturns. A Merchant Cash Advance is an easy solution for any business owner that has been in business for at least three months. A Merchant Cash Advance is a loan against your future credit card receivables that can convert your future sales into instant capital today; many business owners even find that they can easily repay the loan by slightly increasing the price of a popular product. And because the loan is paid back by a percentage of your daily credit card sales, it automatically fluctuates with your cash flow so you never have to be considered about making a payment that you can’t afford.
Depending on your situation, you may also qualify for a Small Business Loan. Merchova offers free financial consultation services so that you can review your business financial options to determine the best fit for your need