Minority and women-owned businesses have more difficulty accessing capital than businesses owned by white males. The reasons for this are many and varied. But when you’re trying to get a business loan, the reasons for the disparity will probably matter far less to you than learning what you can do to maximize your chances of success.
As we noted in previous articles, lenders look at many factors when evaluating the creditworthiness of a business. Some of these you can’t do much about. You can’t, for example, increase last year’s gross revenue, nor can you change the economic conditions that may give lenders pause. But, with a little time and effort, you improve your business credit score and your chances of getting a loan.
What Is a Business Credit Score?
A business credit score is similar to but not exactly the same as a personal credit score. Both are calculated based on the same general factors, including:
- Length of credit history (or how long you’ve been in business)
- Credit utilization — what percentage of your available credit you have used
- Credit mix — for example, business credit cards, loans and lines of credit
- Payment history
However, the federal government requires that the agencies which calculate your personal credit score use the same metrics and the same reporting scale. That’s not true of business credit reporting agencies, which receive less regulatory oversight have much more flexibility in how they calculate and report your score. For instance, Dun & Bradstreet, Experian, Equifax, and Scorely calculate business credit scores on a scale of 0 to 100. FICO, on the other hands, uses a 0 to 300 scale.
Business credit reporting agencies get information from numerous sources when calculating your business credit score. In addition to getting information on your repayment history from other creditors and suppliers, they will access public records, looking for information on any lawsuits, judgments and liens, UCC filings, or corporate financial reports. They may also do an internet search to find news stories about the company, press releases, customer ratings and the like. In some cases they may conduct in-person interviews with principals of the company as well.
Steps to Improve Your Business Credit Score
As with all things financial, building good credit takes patience and time. However, there are things you can do right now to ensure that your business credit score is accurate and up-to-date. They include the following five steps.
Get Your Business Credit Report
As is the case with your personal credit, the first step towards improving your business credit score is to get copies of your business credit reports. This can be a somewhat daunting task, since there are quite a few agencies in the mix. To start, get in touch with the following companies and request a copy of your credit report:
Maintain separate business bank accounts
No matter how small your business is, a separate business bank account signifies to lenders that you’re the real deal. Open all accounts using your employer identification number (EIN) and not your Social Security number to ensure that business credit reporting agencies can track these accounts.
Use a business credit card
Again, it may be tempting to simply use your personal credit card for day-to-day expenses. But the only way to establish a positive credit history is to maintain credit in your business’ name. With that said, make sure to keep balances low and pay them off each month to avoid accruing interest and help your business credit score improve.
Pay all bills early or on time
As a new or emerging business, paying your creditors and suppliers on time is the single most important thing you can do to build and improve your business credit score. What’s more, unlike with personal credit, paying accounts early will earn you additional points. For instance, to earn 90 or 100 out of a maximum score of 100 on the Paydex model, you must consistently pay your suppliers 30 to 20 days before the account comes due.
Ask suppliers to report your payments
In many industries, suppliers and vendors grant credit to trusted business colleagues. That is, they supply a product or service up-front and and allow the business to pay for it in 30 to 90 days. However, not all of these suppliers will report your repayment history to a business credit reporting agency. This can make it hard to build or improve your business credit score.
To ensure that your business credit history is accurately represented, try to do business with vendors who will report your payment history to at least one of the agencies noted above.
Monitor your credit report
With many different agencies using different models to calculate your business credit score, it may be worth your while to sign up with a company that will monitor your credit score. Much like firms that watch your personal credit report, these companies will monitor your credit score, as well as send you security and fraud alerts. Check out Nav, Creditsafe and Credit.net as well as the credit monitoring services from Equifax and Experian.
About The Carmoon Group
The Carmoon Group Ltd. is a minority-owned insurance brokerage headquartered in Hicksville, New York. Through our large network of nationwide affiliates, we offer risk management solutions and comprehensive insurance programs for businesses in a wide range of industries. We have the expertise and experience to provide you optimal coverage at the best possible price. So why not give us a call today to set up an appointment for your insurance review? Or if you prefer, just reach out online and we’ll get back to you at a convenient time.