Most small business owners are familiar with the process of applying for the funds they need in order to launch or grow their ventures to scale. You gather documentation, including relevant information about your business’ revenue and expenses, find a bank, credit union, or other financial institution that offers financing, and you apply for your preferred method of funding.
But whether you’re applying for a loan, business credit card, business line of credit, or other financial product, the lender is going to take a hard look at your business’ overall financial standing. That means obtaining a copy of your business credit report generated by business credit bureaus.
Business credit reporting agencies like Dun & Bradstreet, Experian, and Equifax play a crucial role in providing these reports and helping you understand your business credit score. Here’s what’s included in your business credit report, how to read and understand it, and an explanation into the impact of a business credit report on your venture.
What is a Business Credit Report?
Essentially a background check for your business, a business credit report provides investors and lenders with a look into your company’s creditworthiness. Obtaining a business credit report is standard procedure during the due diligence phase for those considering providing you funding, and it’s even sometimes used by vendors, suppliers, or other businesses considering working with you.
This report will help them gauge the overall risk of lending or financing your business, and includes a business credit score that notes major aspects of your financial history. Things like a history of fiscal responsibility, which means paying back invoices and loans on time, will be reflected in a high score; legal consequences due to non-payment, such as bankruptcies or lines, will mean a lower score.
How is a Business Credit Report Different from a Personal Credit Score?
Generally speaking, your personal credit report is based on your fiscal decisions pertaining to your personal credit cards, loans or mortgages, and payment history.
Personal credit scores are based on these personal financial decisions and can impact your business credit scores. Your business credit report is focused on financial moves related to your business, including financing such as loans you’ve obtained to launch or grow your business, payments to vendors, and other related matters.
Notably, one major difference between business and personal credit reports is that business reports tend to vary between bureaus. While scores may differ when viewing personal credit reports from different agencies, the score for an individual will typically be similar across the board.
That’s not the case for business credit reports. Oftentimes, business owners are surprised to find that their report and credit score varies wildly depending on the credit bureau. The reason for this is that not all vendors and suppliers will report your payments to each and every credit bureau, meaning that many business credit report providers are working with limited or incomplete data.
What’s Included on my Business Credit Report?
While business credit reports look different depending on the company providing them, you can expect to find various scores such as the business credit risk score, which evaluates the likelihood of repaying loans on time and the risk of severe delinquency in the next 12 months. You can also expect to find the following information on your report:
A Company Summary
This section will lay out the basics about your business, including associated businesses like subsidiaries or parent companies, the size of your business, the number of years you’ve operated, and the number of employees.
Your Business’ Payment History
A breakdown of your company’s payments to vendors and suppliers will be reflected in your business credit report. Whether or not you are paying your invoices consistently, and in a timely manner, will be clear. Additionally, some business credit reports will break down your payment activity on a month-by-month or quarter-by-quarter basis.
Collections, Judgments and Liens
Any penalties issued against your company for non-payment will be visible on your business credit report. These legal consequences serve as a major red flag to potential lenders and investors, who may be more hesitant to finance your business.
A Risk Rating
This number or code is meant to serve as a big picture view into how stable your business is and the likelihood that you’ll experience financial problems in the next year. Your risk rating may be calculated based on the business credit risk score, which evaluates your likelihood of repaying loans on time and the risk of severe delinquency in the next 12 months. Companies operating in spaces where failure is more commonplace will see a higher risk rating.
Your Credit Summary
Your business’ average credit utilization, previous credit inquiries, credit limits, and amount of credit currently extended to your company will be noted in this section of the report. This information is meant to give lenders an understanding of how much credit your company typically uses, and what your utilization patterns generally look like.
Where to Find Your Credit Report
The main business credit report providers are the major business credit bureaus: Dun & Bradstreet, Equifax, and Experian. An Experian business credit report is particularly important as it includes financial information, credit worthiness, credit score, and the cost of obtaining the report. All of these agencies will require that you pay a fee in order to view your business credit report. You can choose whether to make a one-time payment each time you want to view your report, or you can sign up for a subscription plan where you can view and track your changes at all times, by paying a monthly fee.
How Does a Business Credit Report Affect my Company’s Future?
Your business credit report is incredibly important for the future growth and development of your venture. In order to continue expanding your operations, hiring new employees, obtaining more inventory, growing your services, and opening new locations, you’ll need funding to make that happen. Whether it comes in the form of a loan, credit card, or line of credit, financing is an essential tool for continuing to move your business forward. Your business credit report serves as a critical factor when lenders are considering whether they’ll provide you with funding. It directly impacts the approval, rates, and terms of a business loan. At the end of the day, a stellar or poor business credit report can be the make-or-break factor as to whether you’re able to successfully obtain the credit you need to take your business to the next level. If you have a less than perfect credit score, that’s okay. It’s important to remember that legal issues like collections, liens, and bankruptcies won’t remain on your business credit report forever. Each bureau has their own criteria for how long they’ll continue listing those items, but if you’re fresh after a penalty or bankruptcy, it’s likely advantageous for you to wait a few months or years (if possible) until it no longer appears on your report.
