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What We Talk About When We Talk About Business Credit

By Doug Sperry of Equifax

When starting a small business, it's important to dot every "I" and cross every "T." This includes the obvious steps such as: proper small business setup; the development of a sound business plan; and the identification of proper personnel resources. Equally important is understanding the difference and potential overlap between personal and business credit.


What Is Business Credit?

Similar to your personal credit, business credit informs vendors and lenders about credit history, financial responsibility and other aspects of your business. Generally, business credit scores come in numeric ranges much like personal credit scores, and incorporate information from accounts listed under your business name. The information used to calculate a business credit score can include account information from both financial institutions, such as small business loans and lines of credit, as well as trade credit information, such balances and payment information with a business' vendors, suppliers and service providers.

Like a personal, or consumer, credit score, several commercial credit reporting agencies (CRAs) calculate business credit scores. Equifax Business Credit Reports typically include the following information:

  • Company Profile - key "firmographic" information such as company name, address, and phone numbers
  • Credit Summary - a synopsis of the business' credit accounts with financial institutions, suppliers, and service providers
  • Public Records - Secretary of State business registration, judgments, liens, or bankruptcies reported for the business
  • Payment Trend and Payment Index - a 12-month payment trend and comparison to the industry norm
  • Additional Company Information - any alternate business names, owner and guarantor names, and business and credit grantor comments


How To Build Business Credit

To help build business credit, also known as commercial credit, your small business should be properly structured. Business structure types vary by state, but generally include sole proprietorships, partnerships (general and limited), limited liability companies and corporations. The business structure you choose will have different tax and legal implications. However, proper setup in most if not all cases will include appropriate licenses and a federal tax identification number, and many include required filings with the applicable state corporate registration department. Business owners should consult their legal and tax professional for advice on the most appropriate business model in each circumstance.

Once your business is appropriately established with all of the commercial requirements for legally operating, there are several credit types to consider, which include secured, unsecured, open-end and closed-end credit. These credit types represent an array of products, such as collateral based loans, credit cards, lines of credit and real estate. Working with suppliers is another means for building commercial credit. Some suppliers may extend trade credit to your business. Trade credit allows a supplier to provide businesses with goods or services with agreed-upon payment terms, such as 30, 60 or 90 days to pay rather than payment at point-of-sale or service. Many of these trade credit providers report this payment history to one or more commercial CRAs, which can help build out your business credit profile.

Similarly to personal credit, it is important for a business owner or entrepreneur to understand not only what it takes to correctly start up and operate your business, but how commercial credit can impact your business needs, such as capital and expense expenditures. It is important that a business make payments in a timely fashion and manage business credit as responsibly as personal credit.

Entrepreneurs often use their personal finances when starting a business; this equity investment may help establish commercial credit. In cases where a company does not have business credit history or a lender or supplier wants additional insight about the borrowing company, a lender or supplier may review the business principal or guarantors' personal credit.


How To View Your Business Credit Score

Unlike consumers, businesses usually have to pay to view business credit reports and scores, when available. Furthermore, unlike a personal credit report and score, which may only be viewed if there is permissible purpose, many commercial CRAs will allow a wider range of customers to have access to a business credit report and score – generally at a cost.

You can typically purchase your business credit report and scores from a commercial credit reporting agency, such as Equifax. Keep in mind that the business score and level of information each report may vary depending on the reporting agency.

As with your personal credit report, it is a good practice to monitor the information on your business report and to build good business credit habits. A good history of responsibly managing your business credit may help you get approved for a future business loan or secure more favorable credit terms with your suppliers.


Doug Sperry is vice president and group counsel of Equifax, where he provides legal and regulatory counseling to Equifax's U.S. businesses, new product initiatives and global data governance. Before joining Equifax, Doug was a senior associate at Alston & Bird LLP, a global AM Law 100 law firm, where he provided legal support for clients on mergers and acquisitions, securities and general corporate matters.

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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