Tuesday, June 15, 2021

Four Factors Impacting Business Credit Reports

Three of the largest and most widely known business credit agencies in the US are Experion, Equifax, and DNB. A business credit report agency is able to prepare a high level analysis of how well a company will be able to pay its bills, and this is available after seeing scores from the credit agencies. 

Different business aspects can be combined into a single report and this is very important for every business in the US.

Parts of a Business Credit Report

The following information is provided by every leading business credit report agency:

1. Risk Dashboard - It consists of repayment risk, credit limit recommendations, derogatory legal filings, and fraud alerts to show the level of risk in the business
2. Identity of Business - This is established through information such as an address, name, tax ID#, website, DBA’s, and more
3. Description of Business - It shows the history of a business, its date of incorporation, stock exchange information, number of employees, and other data. It may also indicate company size under the same heading.
4. Summary of Legal Filings and Payments - It shows creditor balances, bankruptcies, liens, days beyond terms, and other information on the same lines

The tasks that need to be done by business credit report agencies are very different from those with respect to personal credit scores. These are highly specialized tasks and require elaborate experience.

How Are Business Credit Scores Helpful?

These scores are helpful for a business that can use reports of other potential clients to know their financial positions. It helps understand the risk appetite of a new client and know how beneficial long-term business here will be. 

Businesses can avoid working with other clients who have payment default histories. Future risk can also be averted through score summaries.

Most businesses require loans either for setting up or expansion. Interest rates on business loans as well as the terms of repayment are assessed on the basis of business credit scores. 

Therefore, companies can make future plans on the basis of these accurate reports and summaries. The best agencies do not just provide services but also educate B2B customers about maintaining good business credit scores.

Top Factors Which Have an Impact on Business Credit

Any entrepreneur who wants to establish a company without giving away equity would require funding. To keep the business vision in check, 100% ownership is often necessary. 

A solid credit score will always make lenders more comfortable with the entrepreneur’s financial behavior in the present and future. Here are the most important factors that impact business credit and have the potential to make or break a company:

1. Accounts and Financials - Every entrepreneur must employ professional bookkeepers for accurate financial records. Lenders will want to see important documents such as YTD P&L statements, YTD balance sheets, and sometimes YTD cash flow statements as well. Without proper records, entrepreneurs can forget about getting the funding they need.

2. UCC Filings - This is one topic about which every entrepreneur should ask the lender. UCC or Universal Commercial Code is a legal notice that a lender files with the Secretary of State for security interest against one of the entrepreneur’s assets. A blanket UCC filing will ensure that should the entrepreneur default, the lender will get access to all the involved assets. This also means that risk in such a business is higher than normal.

3. Business Structure - It is very important to register a business with the Secretary of State whether it is or will be operating soon. If the business has not been incorporated, it means that money for a service or product is being collected under an individual name or registration for sole proprietorship has been done. Lenders will generally not be comfortable giving loans to sole proprietors. 

4. Importance of Payment History - There is no doubt that payment history does affect a personal credit score, but it may also impact the score calculated from a business credit profile. All invoices must be paid early to build this score. Entrepreneurs would also be benefited if they assign contracts with vendors reporting to D&B and Experion.

Although the above are critical factors for business credit, there are others as well. It is important for a proprietor to know about this as the journey to entrepreneurship is begun. Ideas are invariably good, but these will not see the light of day unless they are funded properly.

How to Rectify an Existing Default?

All is not lost after an entrepreneur default on a business-related EMI. Taking a short-term loan too may appear counter-productive, but it is actually useful. 

Paying the new loan on time shows the credit bureau that the entrepreneur is fully capable of clearing debts and handling credit responsibly. 

Therefore, a business credit score that may have fallen back can get the much needed boost to recover. However, all older loans must have been fully paid off to implement this tip.

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