A business credit report is crucial for banks, lenders, suppliers, and credit providers to evaluate the creditworthiness of small businesses. This report offers essential details that help in making informed credit decisions. It shows a company’s ability to fulfill its contractual duties based on payment history and public records. Having this data is critical for securing the funds necessary to operate and grow a business. It affects various financial decisions, such as:
– The amount of business credit a supplier will offer.
– The repayment terms you’ll receive.
– The interest rates you’ll pay.
– The amount of credit or funding a bank or lender will provide.
– How your customers perceive your business.
– The insurance premiums you’ll pay.
Business credit reporting agencies, like Dun & Bradstreet, Experian Commercial, and Equifax Small Business, gather data on millions of businesses and compile it into credit reports. All this information is then used to determine a business’s credit rating.
A typical small business credit report includes:
– Company details such as number of employees, sales, ownership, and subsidiaries.
– Historical data of the business.
– Business registration details.
– Summary of government activities.
– Operational data of the business.
– Industry classification and data.
– Public filings (liens, judgments, and UCC filings).
– Past payment history and collections.
– Number of accounts reporting and their details.
Most business credit reports contain similar types of information. Although each agency has its own methods for collecting and verifying data, the core sections are generally consistent.
The first section you’ll see on a small business credit report is the business profile or company information. This section includes the company’s legal name, address, incorporation details, ownership, subsidiaries, and number of employees. Additionally, it will list financial data, such as annual sales and possibly a financial statement.
The payment history section outlines how a company has handled payments over the past several years. This includes invoice activities, outstanding balances, payment terms, and credit limits.
The public records section lists legal filings, bankruptcies, collections, and UCC filings. If there are legal judgments or collection accounts mentioned here, a creditor might see the business as financially distressed and be reluctant to engage with it.
Finally, based on the information in the credit report, each agency will assign a business credit score or rating that forecasts payment behavior.
Business credit reports and scores reflect a company’s financial stability. Therefore, a key objective for small business owners should be maintaining records of timely payments for all financial obligations to establish a robust business credit report and score.
