Advice from a Loan Underwriter: Why You Need to Build Your Business Credit Now
Like your personal credit score, your business credit score is how lenders, creditors and suppliers will determine if you’re a worthy candidate for a loan, line of credit or favorable payment terms on your next shipment of materials. One mistake entrepreneurs make is thinking about their business credit only when they’re ready to apply for a loan but business credit should be thought of long before you actually need it.
While mid sized and larger companies that deal with banks and suppliers on a regular basis will naturally start to develop a credit profile from their day to day interactions, smaller companies and soloentrepreneurs might find that after several years in business they have a pretty bare bones credit profile. Developing a good credit profile takes more than just opening a business checking account and printing out business cards; you’ll want to open up a credit account whether it be a no fee line of credit or a business credit card from your local bank. By opening up a credit account, even though you may not need it, you’ll be building up your business credit profile for when you do need a loan.
Business Credit 101
You probably know all about your personal credit score, what it makes it go up and what makes it go down. What about your business credit score, unlike the highly regulated field of personal credit, business credit is still a little bit of a mystery to most small business owners. Thankfully both scores serve the same purpose and look at a lot of the same factors, so all the good stuff that you’re doing to improve your personal credit will also help your business score too.
There’s a few key differences between personal and business credit scores to keep in mind. Unlike personal credit scores, business credit reports and scores are not private, any company or person can pay to see your business credit report. Unlike personal credit report, where you’re entitled to one free credit report from the three major credit bureaus every year, you’ll need to get your wallet out to see you business credit report. The scoring system also varies, business credit scores range from 0 to 100, with a good score in the 80-100 range. What goes into a score varies from one credit bureau to another but it will include things like:
· How long your company has been in business
· How many accounts, if any went to collections
· Did the business file for bankruptcy
· How many credit accounts did the business apply for
· How much of available credit is being utilized
· Number of accounts that are 30 or more days late
When business is good a good credit profile can help you get a favorable interest rate on a loan to grow your business or get better terms from your suppliers. When business is in a downturn a good credit profile can help you borrow money when you need it most.
To find out how LiftForward can help you and your business grow with our suite of loan products contact us today!