Small business credit scores are similar to personal credit scores – except they are specifically ratings for businesses. A small business credit score is important to a business owner, and to the businesses which interact with that small business, such as vendors and suppliers.
What Are Business Credit Scores?
Small business credit scores put a number value on credit worthiness. Lenders, vendors, suppliers, customers, and others can check business credit scores. They often do so before deciding to conduct business with a company.
There are three main business credit reporting agencies: Dun & Bradstreet, Experian and Equifax. Small business owners can check their business credit reports, as well as the business credit scores of other entities. Vendors and suppliers often check business credit scores before extending credit, especially to a new customer.
How Do Business Credit Reports Differ From Personal Credit Reports
You keep your personal and business finances separate. Business credit scores and personal credit cards are also separate, with one exception:
FICO SBSS (Small Business Scoring Service)
The FICO SBSS uses business credit reports and an owner or owners personal credit report, and additional financial data, to determine credit worthiness. The FICO SBSS is required by the Small Business Administration (SBA), as well as banks, credit unions and other lenders. You need it to get an SBA 7 (a) loan. If you’re going to apply for the SBA 7 (a) loan, you’ll need a personal credit score of 600 or better. The FICO SBSS will be a number from 1-300, with 140 needed for the SBA 7 (a) loan.
Why Does a Business Credit Report Matter?
Credit scores are hugely important in the business world. Here are places where good business credit scores have an impact:
- Getting financing – you can get a higher loan and a better interest rate with good credit.
- Getting credit extended from vendors’ and suppliers’ credit reports.
- Businesses can check the business credit scores of other businesses.
- Insurance providers evaluate your credit risk, which is another reason to build strong business credit.
What Factors Affect a Business Credit Score?
The same factors that affect personal credit scores affect business credit scores. You can keep your personal score in the high/good range by keeping your personal finances in line. As a small business owner, you can keep your business credit file in the good/low-risk range and get a good business credit score with these practices.
Good Payment History
Build your business’s credit. Pay bills early or no later than the due date. That includes any business loan, your business insurance bill, and your business expenses, such as utilities.
Use Credit
Use various types of credit, such as small loans and business credit cards, to establish separate credit records with a mix. Build business credit but don’t over-extend your credit limit. Small businesses need to keep tabs on the ratio of what’s owed versus how much is available to borrow.
Establish Trade Credit
Small business owners should start to build a good history with vendors and suppliers with small purchases that are paid off early or on time.
Keep Personal Credit Scores Good
Your business’s financial history isn’t impacted by your personal credit scores, except with the FICO SBSS rating, as previously discussed. That’s when the personal FICO scores range impacts a business owner’s FICO SBSS rating.
Stay Out of Legal Trouble
If you have any reported tax issues, such as failure to pay state taxes and/or employment taxes, that could impact your business credit report. The big three business credit bureaus look at a business’s payment history and other financial records, and also look at public records. If there are tax issues or legal matters such as liens on a property, that will impact a business owner’s credit and the business credit risk score.
What Is a Good Credit Score for a Small Business?
Business credit reports have a few key differences. Personal credit scores range from 0 to 1000; a business credit profile will typically have a score of 0 to 100.
Business credit scores differ by the value of the number assigned. Typically, business credit scores range on a scale from 0 to 100, with 0 to 10 a business failure score. The FICO SBSS score will be a number from 0 to 300.
Dun & Bradstreet assigns a Paydex rating from 0-100. When a business pays bills on time or early, the business credit history would be 80 points and higher. If a business pays 60 days or more late, the rating would be from 0-49.
Experian uses business data to establish a business risk factor called Intelliscore Plus, also on a 0 to 100 scale. Business credit grades higher than 76 are considers “low risk” for lending or extending credit. Scores 1 to 10 are considered “high risk” and poor.
The FICO SBSS score is on a scale of 0 to 300. To get the SBA 7 (a) small business loan, you’ll need a score of 140 or higher. Other small business lenders will want a score of at least 160.
In short, when you’re looking at your own or other business credit scores, you need to know what the number means. How is the business credit score calculated and what does it mean? A successful business will have a credit rating – to matter what the number – that translates to a “good” rating.
How to Check Your Business Credit Score?
You can check your business credit score by going to any of the big three – Dun & Bradstreet, Experian and/or Experian. You can also check your FICO score. All of that can be done with no fee.
If you want to check another business, you’ll pay a nominal fee.
How to Build Your Business Credit Score?
Building business credit takes attention to detail, especially keeping track of due dates for bills. With a bad payment history, you’ll have a tough time getting business loans and building your business.
Build your business credit score by making timely payments and establishing credit. Keep your personal score high by making timely payments if you have a personal loan, such as a car or credit card payment.
In short, build good credit habits in both business and personal finances.
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