As a business owner, did you know that your company has a credit score and, if so, what it is?
Probably not, says Marv Davis, an Atlanta-based consultant who helps companies repair their credit. One reason is that the personal credit, or FICO, score of a small business owner is often a big factor in whether he gets financing or not. Also, businesses have longed looked to Dun & Bradstreet, a major provider of corporate credit reports, to assess their creditworthiness.
But other companies, among them Experian, have jumped into the corporate credit game. Now that many small businesses are having trouble getting the capital they need, knowing what their credit score is and how to improve it can be crucial to getting a good interest rate on, say, a corporate AmEx card.
“A business credit score is like a personal credit score,” says Davis. “It measures your credit worthiness. A good score allows a business to borrow at preferential rates.”
Business credit scores are tallied on a 0-100 scale — an optimal rating is 75 or higher (personal credit scores, also known as FICO scores, range from 0 to 850). The three biggest factors that determine both business and FICO scores are, in order of importance, your payment history, amounts you owe and how long you’ve had a credit history.
Like your personal credit score, your business grade can affect your ability to get corporate credit cards or other debt needed to finance your business. Keep in mind, however, that they aren't always the sole determination of your ability to borrow. And while good scores are helpful for getting credit cards and other lines of credit, they are less of an influence when it comes to getting a bank loan.
“We pay very little attention to these scores,” says Nathan Rogge, president of San Diego-based First Business Bank N.A. “When funding small business loans we look at the business’s cash flow, collateral and the owner’s FICO score and report.”
So how can you check your credit or that of another business? First you need the EIN number of the business. Then go to Experian or Dun & Bradstreet (the main keepers of business credit) or you can find another business credit report site. Reports typically cost $35 or more.
Here are eight ways you can raise your business credit score:
1. Pay all bills on time and in full. On-time payments are one of the biggest factors in determining your credit score.
2. Don’t go up to your credit limit. Don’t tap into all of your available credit on your business credit cards or lines of credit. Also, pay down any credit card balances that you can.
3. Generate positive cash flow. Creditors know one thing, cash-flow is what pays back loans, and they like to have proof of a healthy cash flow.
4. Increase your personal credit score. Some companies that rely on a business' credit take into account the business owners’ FICO score. The better your personal score, the better your business standing is with creditors.
5. Establish a business credit line: Get a business credit card (e.g., Visa, Mastercard or American Express), or store credit card from a national supplier like Staples or Home Depot.
6. Incorporate your company: Sole proprietors tend to get less overall credit than LLC’s and corporations that have business licensees.
7. Stay out of lawsuits.
8. Minimize the number of liens on your business credit.
This blog is offered by Vistage International, a global CEO member organization. As a CEO, who questions your answers?
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