According to a recent survey from TD Bank 69% of business owners don’t know about business credit scores nor do they realize they even have one. Similar to personal credit scores, business credit scores give insight to lenders and other credit grantors of the overall financial health for your business. Want to better understand your business credit score and how it is calculated? See below.
Many small business owners use personal credit to run their business. However, many creditors today are now relying on both personal and business credit when evaluating business lending, leasing and other credit extension transactions. Reporting agencies like Dun & Bradstreet is an example of a business credit reporting source.
There are three main factors in determining business credit.
1) Business credit history, This is your business’s payment habits, number of transactions, outstanding balances, and credit utilization over time.
2) Public record. This is information on the number and amounts of liens, judgments or bankruptcies in your business’s name.
3) Demographic information. This includes years in business, your particular industry, and the size of your business
Just as with your personal credit, there is a set time that items will appear on your business credit report. Business transactions such as loans and leases as well as trade data (have you have paid your vendors and suppliers within their terms) will stay on your business report for 3 years. If your business has had any type of bankruptcy, it will appear on your business credit for 9 years. When it comes to any type of judgments or tax liens (State or Federal), then will appear for 6 years.
Business credit can increase your credit capacity. With a strong business credit history, your business will have greater financial capacity and ability to acquire financing. Business credit is also transferrable. Which means if you were ever in the position to sell your company, good business credit could potentially increase the value.
Having a better understanding of business credit, including how it is calculated and why you might need it, is the first step in building better business credit. Contact GSG Capital at info@gsgcapitalllc.com or www.gsgcapitalllc.com