Owners who understand business credit score significance are the ones who remain relevant in their respective competitive landscapes.
An excellent business credit profile with a consistent, healthy payment history and up-to-date information can help establish credibility in your enterprise.
Decision-makers throughout every industry rely on Dun & Bradstreet, Experian, and Equifax business credit scores and indexes to save time and money when approving potential partners and loan applicants. With just one glance of these business credit scores and indexes, they are able to determine which applicants reflect the least amount of risk and highest likelihood to deliver as promised. In order to utilize these scores and indexes you must understand the benefit of business credit scores.
Most business owners don’t even realize that anyone can access their business credit profile at any time without their permission. Unlike personal credit, the business credit industry is highly unregulated. No authorization is required prior to a business credit review which means that lenders, potential partners and even competitors may be viewing your business credit profiles and making decisions about your firm based on the information they find, whether it is accurate or not. Further, very few business owners understand how credit margins and indexes work, which often leaves them helpless and in the dark.
A business that does not have excellent credit may still get approved for funding on loans, lines, and equipment leases; however, the business owner will be paying much higher direct costs or interest rates if their credit scores and indexes are below a certain margin. A marginal credit score may also leave a business vulnerable to risk; in some cases, necessary credit lines may be pulled or cut when they are needed most. Many large firms monitor the business credit profiles and industry indexes of their partners and require them to maintain their credit scores and indexes within a certain threshold or they will be dropped indefinitely. Some examples include: 20-year partners that were terminated because they failed to meet the credit threshold requirements of their partner-store and businesses that were stripped of their partnership after signing with a major retailer, but before officially launching their product or service. All planning, costs for potential orders, and time invested in attaining the accounts were lost.
Learn About & Order Business Credit Reports
Getting educated is the key to success. It is important to learn about your industry and the lenders and firms that you want to work with. While a business credit score is relatively standard, credit indexes are much more complex. Almost every industry has a series of credit indexes that decision-makers rely on to compare your business’s credit and capital standing to the industry average.
Many of the indexes use statistics and probability to rank your business amongst the rest of the industry.
For example, the supply chain industry uses the Supplier Evaluation Risk Rating, which determines the level of risk associated with a supplier’s ability to deliver the amount of product ordered at the time promised for longer than 12 months. Similarly, many business lenders look to the FICO SBSS Business Score, which pulls from personal and business credit information to determine a business owner’s likelihood to make timely payments. For vendors and many potential new accounts the Dun & Bradstreet Paydex score will be analyzed and reviewed.
As the world evolves and more data becomes available surrounding the habits and traits of successful and not-so-successful businesses, more indexes will be made available to decision-makers of every industry that are linked to business/personal credit scores and indexes. In January of 2016, the Franchise Finance Index, an index that generates a monthly overview of the lending landscape, revealing the average Fico SBSS Credit Score, the average Fico Credit Score, the average liquid assets and the average retirement savings of active businesses. The Franchise Finance Index has prompted many lenders and researches to think about the positive affect that tracking good business habits might have within the lending sphere. Researchers believe that all data can be considered credit data and all data is predictive, meaning the more indexes, margins and tracking that a company or lender can conduct on potential and current partners, means the less room for potential error or risk.
It is so important to make sure that your business’s credit profiles are at their best at all times. You could be subject to denied funding or partnerships at just one glance and no one is required to tell you why you were not considered.
There are many factors that go into a business credit profile and many reasons a business credit profile would reflect poor or marginal credit scores. Below are some of the most common:
- No existing business credit profile. Whether you are incorporated and in business for a week or 20 years, it does not mean you will automatically have a business credit profile.
- Lack of information due to limited vendors, creditors, and lenders. Misinformation about the size, financials, and location of the company.
- Poor payment history on the existing trade lines. There may be liens, judgments, late payments collections reported. Some may be complete errors or totally unknown to the business owner.
- A company normally having great business credit but one delinquency occurs without their knowledge dropping their score dramatically.
- Mixed file issues or errors. The company’s credit profile is being mixed with a different firm that reflects poor credit or there are just errors reported by the bureau to credit.
- Business identity theft or internal fraud.
