What is a Business Credit Report

Different credit report - same concept

You know the importance of your personal credit score, but do you know that your business credit score is equally relevant to your business’s ability to conduct business with third-party organizations.
 

To be sure, the personal and business credit scores are independent and have no impact on one another.

A business credit score, also called a commercial credit score, performs a similar function for your business as a personal score does for your financial life: It informs third-party companies considering doing business with your firm about the risk level to which they are committing.

In other words, business credit scores aim to provide potential business partners, vendors, lenders, or clients a measure of your company’s ability to repay its debts on time.

A healthy commercial credit score is essential to building successful business partnerships, but it also makes your life simpler and safer as a business owner. For example, strong business credit may prevent you from having to agree to personal guarantees for your business obligations.

And, creditors will not be the only ones checking your commercial scores. Investors, insurance companies, and even potential business partners may do so.

In fact, unlike personal credit access, which requires stated permission of the credit holder, business credit scores are readily available to the public. Anyone can get your company’s business credit score from a business credit reporting agency by paying the required fee.

How is it calculated?

The primary business credit report agencies are Dun & Bradstreet, Equifax Business, and Experian Business.

You may have to apply to these agencies for them to begin tracking your business.

Business credit reporting bureaus use your company’s profile and financial performance information to produce your commercial credit score.

The business data that they evaluate includes:

  • Company information, business start date, company ownership, business type, revenues, number of employees,
  • Existing credit obligations,
  • Payment history with suppliers and lenders,
  • Legal filings such as tax liens, judgments, or bankruptcies,
  • Financial performance relative to similar companies in similar industries,
  • Industry risk, and, of course,
  • Proprietary metrics.

Where personal credit scores use your Social Security Number as a unique identifier, business credit scores use your business name, address, and Federal Employer Identification Number (EIN) instead.

The scoring ranges are different as well. While personal credit scores are measured on a scale from 300 to 850, commercial credit scores are generally calculated on a scale from 1 to 100, where 1 indicates the highest risk possible and 100 the lowest one.

While different credit bureaus will use different sub-ranges within the 1-100 scale, the ranges below, used by Experian, are generally observed:

  1. Low                                    76-100
  2. Low Medium                   51-75
  3. Medium                             26-50
  4. Medium-High                 11-25
  5. High Risk                              1-10

Getting a good business credit score is not automatic, especially for small businesses. You will need to be proactive.

After you incorporate your business, get a business bank account and a business credit card, work with vendors that report payments to business credit bureaus, and pay early or on time. Then, check your profile with your credit bureau and even ask to add positive payment experiences to your file where applicable and possible.

The Small Business Administration (SBA) provides a specific guide to building your company credit profile here.

Need more information?

Significantly, when you require capital to grow your business, whether today or down the road, your strong business credit will make it possible for you to access more options, at better rates, and better terms.

Any questions, please don’t hesitate to contact us. We are happy to assist and we work with these every day.

BorrowPartner provides small businesses with simple, flexible, and affordable access to capital, including small business loans, business lines of credit, and merchant advances all customized around your business needs.

Get the financing your business needs to grow

Applying for financing with BorrowPartner does not affect your personal credit score

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