Business owners who want to access capital should understand their business credit profiles. Business, much like personal, credit scores assess how well businesses pay their debts. Key assessment information is the number of lenders, the amounts they have extended, and how promptly the business pays them back.
Business Credit Scores
Major business credit bureaus are Business Credit USA, Dun & Bradstreet, Equifax Business, and Experian Business,. Each is a source of business credit scores for businesses that need to know theirs, but they use not a universal, standard scale as for personal credit scores but variant business credit score scales. Experian scores on a scale of 0 to 100:
- 0 – 15 (High Risk): Such applicants have difficulty obtaining small business financing and should focus on rebuilding business credit.
- 16 – 30 (Medium to High Risk): Such applicants are moderate risks to lenders but may qualify in some cases.
- 31 – 80 (Good Credit): Applicants in this range typically can expect approval of most financing requests.
- 81 – 100 (Excellent Credit): Business credit scores over 80 indicate no barrier to financing.
Generally, the longer a business builds credit, the better its credit score becomes. Creditors need not report timely repayment, so it can take years to establish business credit, and some businesses can operate many years unknowingly failing to establish it.
When small businesses apply for loans, lenders consider the industry or business sector, time in business, operating revenue, and, significantly, even personal credit of the principal(s).
An entrepreneur has the opportunity to acquire, build, and maintain credit both individually and as a business owner. Fewer then 10 percent of all entrepreneurs, however, seem to know or understand how to establish business credit and how it affects them. The mistake many make is to use personal information in applying for business financing. Use of personal credit history for business financing can’t build business credit history.
Personal versus Business Credit
An individual with a social security number applying for a first credit card starts a credit profile with personal credit reporting agencies. This profile or credit report expands with every credit inquiry and every fact reported by those issuing credit. Eventually, the credit report becomes a statement of ability to repay debts. Trade or business credit is similar to personal credit in all other major respects.
The major business credit bureaus compile information about trade credit transactions to create business credit reports by business name, address, and federal tax identification or employer identification number issued by the Internal Revenue Service. The business credit bureaus use this compiled data to prepare business credit reports on which lenders or creditors rely to determine whether to extend credit and how much.
Building Business Credit
Many factors, not just timely bill payments but, for example, amount of available credit, length of time with a credit profile, and number of inquiries on the profile, can affect a business credit score. The key to establishing a business credit profile and score is to find creditors that establish business credit without using personal credit information and that then report the transactions to the business credit bureaus. Such reports build business credit profiles.
Advance Funds Network
One such creditor is Advance Funds Network, which in only a few years has become an established leader in financing small businesses. An entrepreneur may have exciting ideas for expanding a business but need financing to build on them. Without a high credit profile rating and collateral, many banks may refuse financing. Fortunately, Advance Funds Network offers alternate financing in business lines of credit, business cash advances, and other credit arrangements to suit every applicant.
The Business Line of Credit
The business line of credit is an easy way to finance business ventures without restriction on what the business may borrow. The business may draw down on the credit line while paying for only money used. As the business builds a track record, additional financing may be available.
The Business Cash Advance
As a merchant cash advance differs from a traditional business loan, it is not difficult for a business with no established credit score to qualify for it. There will be no credit check nor any collateral required. The business can use the cash in any way it sees fit and repay the cash advance from future sales proceeds. The applicant and an Advance Funds Network funding specialist create the best cash advance plan. Call now.