Your business credit score can be the make-or-break factor when applying for a business loan or seeking investors for your enterprise. Here’s a breakdown of the biggest business credit score providers, how your score can affect your business’ success, and the best ways to improve your business credit score.
What is a business credit score?
Similar to a personal or individual credit score, a business credit score indicates a venture’s borrowing history, reliability, and financial health. Your business credit score is simply a snapshot of your business’s financial standing at a specific time and can fluctuate or change from month to month based on something as simple as a late or early payment to a vendor or supplier.
Unlike ROI or a net profit margin, your business score doesn’t reflect your sales or profitability. Rather, it is a reflection of your overall financial situation, including whether or not you pay bills punctually and reliably. It also indicates whether your business is being managed sustainably, and fiscally responsibly.
Your business credit score is one of the top factors that investors and lenders use to determine the risk of providing your business’s funding. Just as having a good personal credit score is important for obtaining a mortgage with favorable terms, a great business credit score is the key to getting the financial support you need to grow your business.
Business credit score vs. personal credit score
Your personal credit score is connected to you via your social security number and other personally identifying information, such as your name and date of birth. It reflects the major financial milestones in your life, your personal spending and borrowing history, and your assets. The FICO scoring system determines personal credit.
Even as the founder or Owner of your business, your business credit score is an entirely separate entity from your personal credit score. Your business credit score is connected to your venture’s Employer Identification Number (EIN) or Tax ID Number.
Notably, there’s no industry standard for determining a business credit score, like FICO for personal credit scoring. Business credit score providers each use unique metrics to create your score and may pull information from different sources than their competitors.
Why your business credit score matters
A business credit score is the easiest way for potential lenders and investors to gauge whether they should invest funds into your business. While your ROI and net profit margin are also critical factors in the decision-making process, a business credit score reflects your venture’s overall fiscal responsibility and track record.
A solid business credit score can provide peace of mind to entities or investors weighing investing in your business, as it indicates that you are a legitimate organization.
Beyond the “stamp of approval” provided by an excellent business credit score, a high score can also earn you financial benefits. For example, if you have a fantastic business credit score when applying for a loan, you can likely negotiate for better terms, such as a lower interest rate and monthly payments.
If you have a poor business credit score, the chances of scoring a large loan are slim to none. In today’s market, where many financial institutions are embracing a risk-averse approach, a low business credit score can make investing in your venture seem like a potential liability.
Maintaining a stellar business credit score is critical for ensuring that your business can obtain the funding it needs to grow to scale and make your venture as appealing as possible to potential investors.
Major business credit score providers
There are 3 major business credit score providers in the US: Experian, Dun & Bradstreet (D&B), and Equifax. While the companies use different methodologies to produce their scores, most financial institutions and investors will use business credit scores from one (or all three!) of these providers to make a decision.
Out of these three providers, Dun & Bradstreet (D&B) is the only one that exclusively focuses on business credit scores. Both Experian and Equifax also provide personal credit scores.
D&B’s business credit score is called PAYDEX and essentially summarizes whether you’ve paid your vendor and supplier bills consistently and promptly. However, they only use information from vendors and suppliers who report to D&B – if you’re regularly paying invoices to companies not affiliated with D&B, that won’t strengthen your business credit score with this provider.
If your suppliers and vendors aren’t linked to D&B, you may want to consider switching to alternatives that report to the body so that your fiscal responsibility and reliability are reflected in your business credit score.
When issuing business credit scores, Equifax leverages data from the Small Business Finance Exchange (SBFE). According to the SBFE’s website, the organization boasts the “largest aggregation of small business payment data in the US today.” The 10 largest business card issuers and 10 biggest commercial banks in the US contribute data to the SBFE.
Experian business credit scores utilize information from lenders, suppliers, and vendors. The provider also leverages banking and public information, such as whether or not your business has any bankruptcies or outstanding liens, how many business transactions you execute each month, and whether you pay bills regularly.
What’s a good business credit score?
Unlike personal credit scores, which range from 300 to a maximum of 850, some business credit scores are determined using a 0 to 100 scale. Experian’s Intelliscore Plus and D&B’s PAYDEX Score use this system.
A score between 80 and 100 is considered excellent and indicates that your business is paying its bills on time or early. If your score is between 50 and 79, that’s considered “fair” and means that payments are 15 to 30 days late. A score below 50 indicates that your business is late on paying bills by 60 days or more.
Equifax’s credit score is based on a scale starting at 101 and ending at 992. The higher your score, the better, and the lower risk to potential investors and lenders.
How to check your business credit score
Obtaining a copy of your business credit score is a relatively simple process. You can visit the Experian, Equifax, and D&B websites, pay a fee, and download a copy of your report shortly afterward. After viewing the report, you may feel your score could be better. The good news is that it is possible to improve your business credit score.
How to improve your business credit score
There are a few simple steps you can take today. First, be sure to always pay your bills on time and consistently. Consider setting up automatic bill pay through your bank, so you never accidentally miss a payment deadline.
You should also review your vendors and suppliers and check that they are affiliated with and report your payments to business credit scoring agencies. If not, your diligent bill paying may not be reflected in your business credit score!
Finally, you might think about ways to reduce the total amount of available credit used each month by your business. If you max out your business credit card regularly, this will reflect negatively on your business credit score. Having available credit left unused at the end of the month can immediately help improve your score.
Revenued is owned by Five Hole LLC, a portfolio company of Capital Z Partners, a private equity fund specializing in financial services. Led by a team of pioneers from the alternative small business financing industry, they founded Pearl Capital Business Funding in 2015. Pearl Capital leverages advanced online technology and underwriting to provide flexible terms and the fastest response times in the industry for small business owners. Through Pearl Capital, we have provided more than 30,000 businesses with over $1 Billion in financing. As leaders in financial technology, we want you to have the same sophisticated, powerful tools we do.
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