By Gerri Detweiler of Nav
Business credit reports can significantly impact not just loan applications, but commercial insurance rates and business deals. It's not unusual for suppliers, vendors or even prospective business partners to check business credit reports and scores, and they can do so without the business owner's permission.
(Photo courtesy of Gerri Detweiler)
The problem is the majority of business owners don't know what's in their commercial credit reports, and negative information or mistakes can cost them important opportunities.
We recently reviewed the business credit reports of Donald Trump's holding company, The Trump Organization, Inc., and The Clinton Foundation and found significant room for improvement.
What Is A Business Credit Score?
Before we get into the specifics of what's bringing down business credit scores of the Trump Organization and the Clinton Foundation, it's important to understand the basics. Just as your personal credit reports will detail how someone has handled loans and other types of credit in the past, business credit reports detail a businesses' experience with credit, including business loans and credit cards, equipment leases and relationships with suppliers and vendors that have extended terms to the business.
The information in these credit reports is then used to calculate business credit scores which help predict how likely it is that a business will pay its bills on time in the future.
How Trump Could Build Stronger Business Credit
The Trump Organization, Inc.'s business credit score as of Sept. 23, 2016, is 19 out of 100, which puts it in the medium to high risk category. It is more than 30 points below the national average.
The main factors bringing down the Trump Organization's scores are related to payment history and derogatory information.
Payment Status: It's well known that paying bills on time helps boost credit scores. When it comes to business credit, that can be even more important as most commercial credit scoring models weight payment history very heavily. Whereas personal credit reports use 30-day buckets (i.e., 30, 60, 90 days late, etc.) to report payment history, business credit reports use "Days Beyond Terms" which detail how many days beyond the due date each payment was made. For example, if terms with a lender are net-30 (full payment due in 30 days) and the business pays on day 33, the account will be reported as 3 DBT.
In the case of the Trump Organization, 9 of the 23 accounts listed on the report are listed as delinquent, and as a result, this scoring model predicts that the Trump Organization will pay 17 DBT.
Derogatories: Negative items such as bankruptcies, collection accounts and judgments fall into this category. Donald Trump has a number of businesses, and while some have filed for bankruptcy, the Trump Organization has not, and therefore there is no bankruptcy listed However, there are several other derogatory items listed:
- Collection Accounts: The report lists three collection accounts. One is listed as paid in full. The other two are for the same collection agency and may be for the same debt. (The status is unclear; one says "Closed At Creditor's Request" and the other says "Uncollected." Both say Amount Paid: $0.)
- Tax Liens: Two state tax liens appear on the report. Though they list different dates (4/12/2016 and 6/29/2016), the amount — $526 — is the same, making it appear that these may also be two entries for the same tax debt. Note that even though the amount of the lien is small in this case, the impact to the credit scores is still likely significant.
- Judgments: There is a judgment listed on the Trump Organization's credit report for $3,294, dating back to Dec. 17, 2013. The status is listed as "filed," but there is no mention that it has been paid. While any judgment (paid or unpaid) can hurt credit scores, an unpaid judgment is particularly risky to prospective creditors because the judgment creditor may be able to go after business assets to collect any court-ordered damages.
On the Plus Side
One factor working in the favor of the Trump Organization is that it has an extensive credit history that goes back 35 years. Credit scoring models may take into account how long a business has been in business, as well as how long ago it established credit. New businesses have a high turnover rate, so the fact that this business has been around for so long works in its favor.
What Trump Can Do to Improve
Someone from the Trump Organization should review its business credit reports to make sure the information reported is accurate. If the collection accounts or tax liens are duplicate accounts, for example, disputing them and getting the extra one removed would reduce the number of negative accounts reported. Going forward, the focus should be on paying on time to establish a positive payment history, which in turn can help build good business credit scores for the organization.
It's also worth noting that Donald Trump is a major stakeholder in over 500 businesses, some of which have excellent business credit scores. Nevertheless, each one is important as it may be reviewed for future credit or business decisions.
The Clinton Foundation's Business Credit Scores
The Clinton Foundation's business credit score as of Sept. 23, 2016 was 42 out of 100, which puts it in the medium risk category, and about 14 points below the national average of 56.8.
On the Plus Side
In its favor, very little negative information appears in the foundation's report. There is one account listed as delinquent, but three are paid on time. There are no derogatory items reported. The projected payment trend is 0 days beyond terms, meaning it is expected to pay its bills on time.
How the Clinton Foundation Can Improve Its Business Credit
With mostly positive information reported, why is the foundation not considered low risk? One factor is no doubt the fact that the report lists the foundation as three years old. That's a relatively short history, which automatically makes it a somewhat higher risk business. In addition, the credit history is fairly slim.
The Clinton Foundation was reportedly founded in 1997 as the William J. Clinton Foundation, and renamed in 2013 as the Bill, Hillary and Chelsea Clinton Foundation. If in fact it was simply renamed and remained essentially the same organization, it may supply that information to the commercial credit reporting agencies, which could then extend the age of the organization. In addition, if there was any credit established prior to the organization being renamed, it may then be associated with the new name and report, providing a more extensive credit history.
Like the Trump Organization, the Clinton Foundation should bring its delinquent account current and be meticulous about paying bills on time in the future to maintain a positive payment history. It would not hurt for it to establish a couple of other accounts that report payment history, such as a business credit card or line of credit.
Neither the Trump Organization nor the Clinton Foundation responded to an immediate request for comment.
Business credit reports are a reflection of the reputation and credit risk of the organization. Whether or not you're a figure in the public eye, it's important to check your business credit reports to make sure they are accurate and complete, and to take steps to make them as strong as possible. That way, you'll ensure you have strong credit when someone looks at it.
Gerri Detweiler is head of market education for Nav, which helps small business owners monitor and build strong personal and business credit, and create financially healthy companies. She is also co-author of the book Finance Your Own Business.
The views, opinions and positions expressed within this guest post are those of the authors alone and do not represent those of CBS Small Business Pulse or the CBS Corporation. The accuracy, completeness and validity of any statements made within this article are verified solely by the authors.
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