What Makes Business Credit So Important

The fundamental method of functioning for a business is to constantly give and receive money in different forms. Every company will return the money in an ideal world, but unfortunately, that’s not what happens each time.

Payments from associated companies may be pending for many months.

To rank the lending potential of every client, business credit checks are conducted from time to time. 

Reputed business credit report agencies are able to prepare high level credit summary reports of how well other companies will be able to pay bills of the client company.

Registration for regular business credit check services will be necessary for this.

Several business aspects can be shown together in a single report and this will greatly benefit every business in the US, whether small, medium, or big.  

Reporting to Major Credit Bureaus

Top ranked business credit report agencies collect company credit information from major credit bureaus in America. The names of these credit bureaus are as follows:

• Equifax
• Experion
• D&B

This ensures that the information available from these agencies is highly reliable. 

Benefits of Business Credit Scores 

Businesses that collect other companies’ business credit scores from reputed reporting agencies can know the financial positions of their clients.

It allows them to understand the client’s risk appetite and whether payments will be made on time or not. Information about payment default histories can be pulled up here. Score summaries may also help avoid future risks. 

Settings up businesses, as well as their expansion, require funds, available in the form of loans.

Terms of repayment and interest rates are judged as per business credit.

Therefore, businesses will naturally be able to execute their expansion or setting up plans if they work with businesses with good credit.

At the same time, the reporting agencies should also educate B2B customers about the importance of business credit. 

Rectifying a Credit Default

Even if an entrepreneur has defaulted on a business EMI, it doesn’t mean all is lost.

Short term loans may be helpful in case of several defaults, although they might appear counter-productive.

Payment of this loan will show the credit bureau that the entrepreneur can clear debts responsibly.

It will be able to help the business credit score recover, but this can be availed only if all previous loans have been completely paid off.  

Information Needed by a Business Credit Report Agency 

1. Business Identity – This is known using information like name, address, name, tax ID#, DBA’s, website, and more
2. Risk Dashboard – It displays risk in the business by way of credit limit recommendations, repayment risks, fraud alerts, and derogatory legal filings
3. Business Description – It talks about the business’s history, date of incorporation, number of employees, company size, and stock exchange information 
4. Summary of Legal Filings and Payments – It indicates liens, days beyond terms, creditor balances, bankruptcies, and other similar information     

Major Factors Influencing Business Credit

Establishing a company without giving equity away would necessitate raising funding.

100% ownership is often necessary to keep the business in line with its vision.

Other interacting clients will feel comfortable if the company has a solid business credit score. The entrepreneur’s financial behavior also greatly matters, as do the following factors:

1. UCC Filings – Every entrepreneur must ask the lender about this. UCC or Universal Commercial Code is a legal notice filed by the lender with the Secretary of State for security interest against any of the entrepreneur’s assets. In case of a blanket UCC filing, the lender will automatically get access to all the concerned assets. Risk is higher than normal in such a business.  
2. Accounts – It is mandatory to employ professional bookkeepers for accurate financial records throughout the year. Lenders will need to see important documents like YTD cash flow statements, YTD P&L statements, and YTD balance sheets from time to time, especially in case of expansion. It is impossible to get funding without financial records being in place.
3. Payment History – Payment history does not just affect personal credit scores, but business credit scores as well.  Credit can be built here by paying all invoices early. Entrepreneurs would get benefited by assigning contracts to vendors reporting to Experion and D&B.
4. Structure of Business – All businesses must be registered with the Secretary of State. In the event that a business has not been incorporated, it is automatically deciphered that money for a product or service here is being collected under an individual’s name or through sole proprietorship. If the latter is true, no lender will feel comfortable doling out loans to sole proprietors.   

All the factors mentioned here are critical for business credit, but these are not the only ones.

Every proprietor should know here that the journey to entrepreneurship has just started.

Getting ideas is a great start, but unless these are funded, it will not be possible for the business to make money.  

 

Tags: business credit

Category: Business