Guest post by Lane Wilson, senior vice president and chief sales officer
Just as a personal credit score helps or hinders a consumer’s ability to obtain credit, businesses also have credit scores that play a key role in securing financing. Do you know what your business’s credit score is? If you will need a loan within the next few years, it would be wise to find out.
Scores are given by business credit bureaus, which include Dun & Bradstreet, Business Credit USA, Experian Business and Equifax Business. Business credit scores range from 0-100, with 75 or higher considered an excellent rating. Scores are based on many factors, including whether or not bills are paid on time, the amount of available credit on bank lines of credit and credit cards, the length of time you’ve had a credit profile and the number of inquiries made on your credit profile.
Whether you’re a new business that hasn’t had time to build up an adequate credit score or your business has run into a streak of financial bad luck, here are some tips you might consider to improve your credit score so your business will be a qualified candidate come loan-approval time.
Analyze current credit reports. Request your business’s credit reports from the various credit bureaus and pay attention to items that are poorly rated. Negative items may be due to mistakes, fraud, identity theft or outdated information. Work with credit bureaus to correct false information. If the negatives are accurate, be aware that they can stay on your credit report for up to seven years.
Separate your business and personal scores. Sole proprietors or those in a partnership may have their personal credit information on their business credit report, and vice versa. Forming a corporation or LLC allows business and personal profiles to remain separate. If doing so doesn’t make sense for you, be sure to improve your personal credit score if necessary.
Pay off credit card balances. Experian states that decreasing the balance on your business credit cards can have an immediate impact on your business’s credit rating. If you must keep a balance, try to keep it under 30 percent of your credit limit.
Request credit-lending companies to report. Credit bureaus create business credit reports with information provided by creditors. The problem is that creditors are not required to send in such information. When a lender extends credit to your business, ask that they report your payment history to credit bureaus. The more vendors that report a positive credit history to the agencies, the higher your business credit rating will be.
Add credit references. If your business doesn’t already have a profile with a business credit bureau, set one up (there will be a fee). You can then add credit references, such as suppliers you’ve worked with, to support your business’s credit profile.
Increase capital and assets. Credit is determined using a complex algorithm, a key part of which is how much worth your business has compared to its debt. By building up your assets and capital, you weight the ratio in your favor.
Build credit before you need it. Consider building a business credit history by getting and using a business credit card. (Do not open too many credit cards, however, as this can decrease your score.) Once you’ve established a payment history, request an increase on your credit limit, even if you don’t need it. Once a higher limit is granted, don’t utilize it. Instead, keep a healthy credit-to-debt ratio that doesn’t push your balance too close to your credit limit.
Build relationships with your lenders. Get to know the employees—particularly the loan officers and managers—at your bank. Community banks are an especially good place to get to know your banker, as their lenders often have a say in loan decisions made by local approval boards.
Pay to play. Some of the credit bureaus offer credit score improvement tools for a fee. You’ll need to evaluate them carefully to see if the cost results in significant benefits.
For more information about how you can prepare or to talk to a business banker, call 800-815-BANK.
This article was first published in The Enterprise.
Lane Wilson, senior vice president and chief sales officer for Bank of American Fork, takes the lead in developing the unique, service-oriented sales culture at Bank of American Fork. Wilson began in the banking industry in 1977, with the last 21 years at Bank of American Fork. He has worked in residential construction lending, mortgage lending and commercial lending and served on the bank’s loan committee. He lives in American Fork where he coached little league baseball for 20 years, has participated in city committees and is involved in religious capacities.