Many people are familiar with their personal credit scores. After all, that’s what lenders use to gauge your creditworthiness when you want to buy a car, a home, or take out a personal loan. But if you’re a small business owner, you’ll need to keep an eye on both your personal and your business credit scores.
Your business credit score will range between one and 100, or 0 and 300, using the FICO Small Business Scoring Service (FICO SBSS). A higher score can signal to lenders that you’re a less risky borrower, potentially making lenders more willing to provide funding that enables you to seize opportunities to grow your business.
Key Considerations
- Business credit scores, which often range from 0 to 100 but vary based on the scoring model, are crucial for securing loans and favorable terms from lenders.
- You can improve your business credit score with responsible financial management, like diversifying your credit mix, ensuring timely payments, monitoring credit reports, and checking public records.
- A higher business credit score may help a business to secure better financing terms, negotiate favorable vendor contracts, attract investors, and reduce insurance rates.
What is Business Credit?
Business credit is a measure of how effectively your business manages and repays debt. If you want to take out a small business loan to expand your business operations, consolidate debt, or meet your working capital needs, your business credit score could be one determining factor.
Similar to your personal credit score, your business credit score will vary based on the credit bureau you’re using to check the score. The most popular business credit scoring models are:
- Dun & Bradstreet: Dun & Bradstreet uses a PAYDEX® Score which ranges from 0 to 100, with higher scores of 80 and over typically being the most favorable according to lenders. *
- Experian: Experian’s business credit score ranges from 0 to 100 and classifies borrowers into low, medium, and high risk categories. Those with a business credit score below 49 are considered high risk, while medium risk borrowers have a score between 50-79, and the lowest-risk borrowers have a score of 80 or above.**
- FICO: FICO’s Small Business Scoring Service (SBSS) gives a business a score between 0 and 300.*** A score of over 160 is generally viewed favorably by lenders, specifically the U.S. Small Business Administration (SBA), which uses the FICO SBSS to prescreen businesses that apply for the SBA 7(a) loans above $350,000.+
- Equifax: Equifax is unique in that it notes three scores on its business credit reports. The business credit score ranges from 101 to 992, and scores of about 550 or higher are generally considered good. ++
It may cost money to check your credit report and score with each of the bureaus, but it may make sense to do so before you apply for a loan if you’re unsure where your business credit score stands.
How to Build Business Credit
There are several ways to build business credit, though keep in mind that specific factors used to create your score will vary depending on the bureau maintaining your credit file.
Diversify your business’s credit mix
Similar to how credit mix makes up 10% of your personal credit score, your business credit score also considers the types of credit you can manage responsibly. Lenders and credit scoring bureaus may view a combination of installment loans, like small business loans, and revolving debt, like credit cards, more favorably.
Pay off financial products in a timely manner
One of the most important factors in your business credit score is your payment history. A history of timely payments will positively impact your score, while a track record of missing payments signals a higher risk to lenders and can bring down your score.
Responsibly leverage credit
Similar to how you manage your personal credit profile, you’ll want to track your business’ credit utilization, age of credit history, and number of new credit applications. Higher credit utilization, shorter credit history, and a spike in new credit applications may all signal risk and result in a lower business credit score.
Monitor your business credit report’s activity
It’s up to you to monitor your business credit report and ensure all of the information is correct. If you identify an error on your credit report, whether it’s a loan you never applied for or a payment marked as late in error, correcting it could help boost your score quickly.
Check your company’s public records
Some credit bureaus will comb through your company’s public records, if they exist, to check for bankruptcies and other indications of financial struggle. Just like you’ll check your credit report regularly, it also makes sense to see what financial information is available in the public domain.
Why Improving Your Business Credit Score Matters
A higher business credit score can help small business owners to:
- Qualify for financing opportunities and more favorable loan terms: Lenders may grant the most highly qualified borrowers the best loan terms and interest rates. And with 52% of firms reporting difficulties paying operating expenses, according to the 2023 Small Business Credit Survey, access to financing is more important than ever.+++
- Negotiate better terms with vendors: Showcasing your propensity for smart financial management may mean you have room to negotiate with vendors to offer you the best contracts and terms.
- Get access to funding through raising money from investors: Potential investors may check your business credit score to determine whether your company is worthy of an investment.
- Qualify for lower rates for business insurance: Insurers may look to your business credit score to measure the risk of insuring your company. A higher score could mean you’re less of a risk and may qualify for a better rate.
How BHG Financial Can Help You Improve Your Business Credit Score
Compared to other lenders, BHG Financial takes a 360-degree view of your finances to qualify you for highly specialized commercial financing up to $500,0001,2, which you can use to reach your business objectives. With repayment terms of up to 12 years1, you can use our secured small business loans to buy or lease equipment, expand your operations, buy out a partner, and more. You’ll have access to our dedicated, U.S.-based concierge service around your schedule, which means you can rely on our team to serve your needs every step of the way.
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