10/ 04/ 2007
by Kay Bell
Credit is crucial for business success. If your company doesn't have a credit profile, here's how to get one started and keep it in prime shape.
Every business owner knows the value of credit. Borrowing allows you to build your company in good times without disrupting cash flow. During slower periods, credit can help maintain your firm's smooth operation.
But to maximize your company's borrowing potential, you need a strong business credit profile. As with a personal credit rating, a good business credit report will help a company obtain credit when needed and on more favorable terms.
The key to building a premier corporate credit rating begins as soon as you start your company. These five steps will help you establish and maintain a positive business credit profile.
- Develop a business plan: If you're just starting your company, this is the critical first step. In addition to helping your get your company started in a professional manner, a business plan typically will be required by lenders. If your company is beyond the start-up phase, update your business plan regularly to take into account its growth and future needs.
- Select a business structure: This is usually done in conjunction with the business plan. A proper business structure, in addition to facilitating your operation, will show lenders that you are operating in a professional manner. From a credit standpoint, a corporation or limited liability company (LLC) could be beneficial. With a sole proprietorship or partnership, personal credit information could be included on your business credit report.
- Open a business bank account: Mixing business and personal accounts not only is unprofessional, it could devastate your individual finances if your company runs into problems. A company-only account is also a way to establish credit since many banks offer debit or check cards in connection with the account.
- Establish business credit: Every business needs supplies, so check with the major office supply chains about setting up an account. Wholesale clubs such as Sam's and Costco are other good credit avenues. If a credit card was not part of your business bank account, apply for one. The key to all these business credit options is to manage them responsibly.
- Review your credit profiles: Once your business credit is established, regularly review the data collected by credit reporting agencies. Just as with personal credit reports, make sure your business' file contains accurate, up-to-date information. If you do find errors, report them immediately and follow through to ensure the mistakes are corrected.
Business credit reporting
Personal credit information is maintained by three major credit reporting bureaus: Experian, TransUnion and Equifax. If you use personal credit accounts for business transactions, that activity will show up here.
But there also are specific business credit reports. Lenders and vendors often rely on this information to determine whether they want to grant you credit and, if so, just how much.
Business credit reports are somewhat different from personal ones. A key variation is that company creditors voluntarily send data to the business credit agencies. So when you do open a new account, make sure the creditor reports it and your subsequent positive payment history to the bureaus to help build your business credit profile.
In addition to payment histories, business profiles often include information on any legal actions involving your company; business registrations and licensing; corporate financial reports; government contracts or grants; media reports; and data from directory listings.
Credit reporting agencies also sometimes conduct direct investigations and interviews with business executives, as well as with firms that do business with the companies.
The major business credit bureaus are:
- Dun & Bradstreet: The preeminent name in business ratings, D&B creates a profile based on information provided by business owners and their vendors. It then issues a PAYDEX score, essentially the business equivalent of the personal FICO score from Fair Isaac and Company. D&B also maintains a DUNS Rating based on the financial statements of the business.
- Experian Business: Experian is one of the "big three" personal credit bureaus, but also tracks business credit ratings using information from vendors only. The company then grants an Intelliscore number.
- Equifax Business: Equifax is also a major force in personal credit rankings. On the business side, it develops scores based in part on banking and lease payment performance information provided by the Small Business Financial Exchange, Inc. Equifax produces a variety of business scores, such as the Small Business Financial Account Acquisition Score and the Small Business Financial Account Management Score.
- FDInsight: A part of Factual Data Corp, a business-to-business information service, this credit ranking service began as a personal credit reporting agency for mortgage brokers. FDInsight business reports contain data supplied by the company itself or by a third party. Staff then independently verifies the information.
- Credit.net: This business profiler, formerly known as Business Credit USA, is a subsidiary of InfoUSA. It also relies on information from business owners, but also verifies the data before entering it in the company's report. Its rankings are on "grade" scale: A+ (95 to 100 points) to C (70 to 74 points).
- ClientChecker: This credit ranking company is dedicated to small businesses and only uses information provided by vendors. That data is translated into a PayQuo Score that is based on payment experiences.
While it can take time to establish a credit rating for your company, once you do, make sure you keep it in prime shape. A strong business credit profile will not only enhance your company's creditworthiness, but also your professional reputation
