If you operate a small business, one of the most important documents affecting the reputation of your company is your business credit report. These reports are compiled by a handful of credit bureaus: Dun & Bradstreet, Equifax, Experian, TransUnion, and a few others — and are used primarily by lending institutions to determine whether your company is creditworthy. Credit bureaus gather information from a variety of sources, including directly from the companies they are reporting on via phone interviews and other methods.
There are steps that you can take to ensure that your business credit is as favorable as possible. First of all, make sure that the information already on file at the credit bureaus is accurate and up-to-date. Check with the relevant bureaus — Dun & Bradstreet, Equifax, Experian, and others — and ask to see the information they have on your company. Often, a major credit bureau will have on-line tools at their website for this very purpose. You should do this on at least an annual basis, particularly if your company is planning to apply for a loan. Ensure that any information that is erroneous or incomplete is corrected as quickly as possible; the different bureaus may have different policies regarding how they make such corrections, and it’s important to be cooperative with them.
Beyond ensuring accuracy, there are various ways in which your company can operate to improve its credit score. First of all, pay on time. The experience that other companies have with your firm in getting payments from you is the most significant single part of your company’s credit report. Pay within the terms established between you and your vendor.
By the same token, if you are making substantial on-time payments to regular suppliers on a steady basis, ensure that your on-time performance is reflected in your credit report. Because timely payment is so important in your credit report, make sure that you are being duly rewarded for your good corporate behavior. Every single transaction that your company has made is not going to be reflected in the report, but make sure that the high-volume, high-value transactions are accurately reported.
If you are the business owner or a principal partner, then make sure your own personal credit rating is accurate and intact. Your personal consumer credit rating may be examined by potential corporate vendors, clients, creditors, or partners. If your personal finances are a mess, a potential creditor might project that your management of company finances will fare no better. The three principal consumer credit bureaus in the United States are Equifax, Experian, and TransUnion; get copies of your personal credit reports from all three bureaus, ensure that they are accurate, and take steps to improve your personal credit score as necessary. Bear in mind, however, that your personal credit reports are separate and distinct from your business credit report.
Your company should attempt to control debt financing. The company’s capital structure — how it uses debt or equity to finance operations — is an important determinant of creditworthiness. You should know your business, and you should determine the extent to which your major competitors finance their operations with debt. Your own corporate behavior should not be far off the mark in relation to your competitors. However, lenders may look at your debt structure in absolute as well as relative terms, and having a lot of debt in your balance sheet could prompt a lender to conclude that you are at risk of default. If you routinely carry debt, be prepared to compare your company’s performance with that of your competitors in this regard.
Be completely transparent and forthcoming with credit bureaus. Many credit managers at lending institutions prefer to see more information rather than less about a loan applicant. A credit report with a minimal amount of information may lead a credit manager to conclude that the company has something to conceal. Examine your company’s credit report and help the credit bureau fill in the gaps, thus creating a more robust report. If you know that a supplier or partner company frequently reports its positive experiences with your company to the credit bureaus, then ramp up your business with that supplier or partner.
On a regular basis, compare the financial performance of your company with that of your major competitors. Lenders and others examining your business credit report will likely be making the same comparisons, so ensure that your company comes out in a favorable light; determine what the benchmarks are in your industry, and try to be a step ahead of them.
Although business credit reports are compiled by third parties, it’s not beyond your control to direct what goes into them. If you focus on engaging in corporate behavior that reflects well in the credit reports, then your company’s scores should be high, and lenders and others with whom you wish to do business will look that much more favorably on your company.
