Dear Dan: A supplier I want to use isn’t offering their best terms because they couldn’t find a credit report on our business. We’re a young business, so I guess we don’t have one yet. Should we?
– Reportless
Dear Reportless: Maintaining a good credit rating for your business is always important – but even more so in times when credit becomes tighter and more difficult to obtain on affordable terms. For small business owners seeking financing of almost any kind, a clean credit report goes a long way toward hearing “yes.”
Banks and other lenders are relying more and more on credit scores produced by major credit reporting agencies when making loan decisions. And having good credit can save you money, because lenders and vendors extend better terms to good credit risks.
For many business owners, however, and especially startups, credit reports and ratings are alien territory.
Here’s a short course in business credit ratings and reports:
What are they? A credit report on your business shows how you manage your financial obligations. Banks, credit card companies, utilities, phone companies and thousands of other business service providers report information to the major credit reporting firms: D&B, Experian, Equifax and TransUnion. They compile the data into reports and create scores.
Do you have one? If you’re not sure, just check. You can search in the business sections of the credit reporting company Web sites. Generally, it’s free to find out, but you may have to pay for a copy of the report.
What’s in it? Financial information, such as major suppliers you deal with, outstanding balances, credit lines or business loans, your payment habits and trends, etc.
Scoring ABCs: D&B calculates a Paydex score as a key indicator of business payment performance on a 0-100 scale. The higher the score, the better. A business that always pays right on time might score an 80; above that you’d be paying early. A business credit report may also include a “DBT” score, which stands for “Days Beyond Term.” DBT is a weighted average number of days beyond the due date that a business pays its bills.
Establishing or improving a score: The credit agencies themselves, along with a variety of other services will help you establish a business credit report, including a full credit report with payment references, for a fee. According to Experian, however, one of the best ways to build and protect your business credit is to simply pay your utility bills on time.
Useful resources include Experian’s BusinessCreditFacts.com and D&B’s MyBusinessCreditReport.com. •
Daniel Kehrer can be reached at editor@business.com.
