It’s still rough for small businesses to get credit these days. A January 2012 report
from the National Federation of Independent Businesses found that 46 percent of small business owners who applied for credit lines were rejected and 35 percent of business loan applicants were turned down.
Your Business Credit Profile Counts
Lenders today expect stellar business and personal credit profiles before they loosen their purse strings. Yes, your business credit profile counts. Just as the Big Three credit reporting bureaus — Experian, TransUnion and Equifax — track your personal credit history and FICO score, agencies and services monitor how your business pays its bills, too.
Dun & Bradstreet (D&B), Equifax Small Business Enterprise and Experian SmartBusinessReports, among others, track a business’s creditworthiness through its payment history and issue business credit scores. Your business credit profile helps determine if your company will be approved for a loan and at what interest rate; it may also help you avoid the requirement of a personal guarantee. The profile can be important even if you’re not looking for a bank loan or credit line, since suppliers and other businesses granting installment payments use these reports to set their credit terms.
First Step to Good Credit
The first step to building good business credit is establishing a separate bank account for your business using your federal Employer Identification Number. Michelle Dunn, founder of the Credit and Collections blog and author of several books on collections, suggests taking out a small loan in your business’s name — maybe a few thousand dollars to be repaid over a short period of time — and paying it back to get your first positive reports.
Make sure your business is listed with D&B
so they record your payment history; you can do this by conducting a search for your company at the agencies’ websites. Also, check with your bank manager or loan officer to ensure that the bank is reporting your business’s payment information to those bureaus.
Next, ask the vendors who extend credit to your business if they report to credit bureaus. Try to work with ones who do. Then, your on-time payments with these vendors will build your business credit history, too.
Small Business Credit Cards
You might think that getting a small business credit card and making its payments responsibly would also help your profile. There’s certainly plenty of advertising for Chase’s Ink, Capital One’s Spark and American Express’s small business cards. But these cards don’t enhance your business credit; they can, however, ding your personal credit if you pay them late. And they’re not governed by provisions of the recent CARD Act, which protects consumers from arbitrary interest rate increases, inactivity fees and other unfair practices.
Fixing Your Business Credit Report
Once a year, check the accuracy of your business credit report to be sure there are no mistakes that might ding your credit. If there are, you should dispute any inaccurate information.
You can’t get a free annual report for your business, the way you can obtain a free personal credit report from annualcreditreport.com
. That means you’ll need to pay for one, and agencies charge varying amounts depending on what you want. Experian’s options
range from $8 for a bare-bones summary to nearly $50 for a full report, for example. D&B offers subscription packages
to monitor your report, with prices ranging from $19.99 to $69.99 per month.
If you were late paying an open credit account for your company, or overlooked and failed to pay some of your business’s bills, work with your creditors to set things straight. Then contact the credit agencies to get these former black marks listed as “settled” on your business credit report.
Finally, don’t fall for scams from firms claiming they’ll clean up your credit report for a fee, warns Dunn. No one can do a better job rectifying mistakes and settling accounts than you can.
By Gwen Moran
Gwen Moran is a small business authority and author of The Complete Idiot’s Guide to Business Plans. She has been running her own businesses since 1992 and was a national finalist in the U.S. Small Business Administration’s Young Entrepreneur of the Year awards competition.
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