5 Things Every Business Owner Should Know About Business Credit

5 Things Every Business Owner Should Know About Business Credit

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Business credit is an area first-time business owners tend to overlook. If your business sells to other businesses or wants to get credit, it’s important to ensure that your business credit information is in good standing. Check out our previous two articles about business credit to learn Why Business Credit Scores Matter for Your Business and How to Boost your Business Credit Scores.

1. Banks use the FICO SBSS Score to screen your SBA loan application — You probably know that your personal FICO scores are important when applying for an SBA loan, but it’s actually an indirect metric. The FICO SBSS score, which is calculated based on both your personal and business credit data, is the actual score SBA uses to screen SBA loan applications. The minimum score to pass the SBA’s pre-screen process is currently 140 (out of 300).

2. Sufficient business credit scores help you get contracts and trade credit — Good business credit scores will get you more than bank financing. Governments and big corporations will check your business credit score (mostly D&B’s Paydex score) before they grant you a contract. Suppliers also give favorable payment terms for businesses with high Paydex scores (80+ out of 100). Building and maintaining a high business credit score is beneficial for most businesses. For more details, read How to Boost your Business Credit Scores.

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3. Your business credit can be spoiled by another business with a similar name — A request to pull your business credit report (whether it’s from a lender, supplier, or random person), is basically a search through a humongous credit database to find records that match the given business name and location. It’s fairly common for your business to get mixed up with another nearby business with a similar name. If a company named “Good Dragon Food” in San Francisco is not paying its bills, another nearby company named “Dragon Food Goods” could have their business credit spoiled if the credit bureaus get the two companies mixed up and Dragon Food Goods doesn’t catch and report the error. Regularly checking your business credit can help you fix these types of mistakes before it has a negative impact on your business.

4. You can check any business’s credit without its consent — The corollary is that any random person can check your business credit. It’s very straightforward to do. You can do a credit check of any business you want by visiting this page and paying $62 – $152. Unlike personal credit, your business credit information is not protected by FCRA. Your clients and suppliers can check your business credit without consent and they might decide you are not credit-worthy enough. They are not required to tell you about the credit check or the reason they turned you down. This is yet another reason to be on top of your business credit reports. On the other hand, this is a great tool for you to do due diligence on big clients, especially if you have a large contract with them. You want to make sure that a client pays its bills on-time.

5. Your suppliers won’t know you defaulted on a bank loan — This is a more nuanced point. What happens is that banks and credit unions have a special data set that’s only shared among banks and credit unions, while they also have access to all the non-financial institution credit data. Thus, if you have a delinquent bank loan, your supplier will not see it on the credit report they pull. But if Wells Fargo pulls your report, it will be able to see all the delinquent accounts. Most alternative lenders don’t have access to the special dataset so they are missing some critical payment records there. This is also part of the reasons why alternative loans are way more expensive than bank loans. They have to underwrite with incomplete data while their cost of capital is also higher.

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About the Author — Yun-Fang is a small business advisor who has lived in the SF bay area for 15 years. She is a software engineer and has worked at Yahoo!, Facebook and Soldsie prior to becoming an advisor for Nav. She is passionate about using technology to connect people and to make the world a level playing field.

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