Navigating Business Credit

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Our curated biweekly guide provides in-depth financial explainers, practical tips and how-to guides, and timely financial and economic updates. Whether you're looking to master the art of strategic budgeting, explore digital marketing strategies, or navigate the intricacies of business financing, this newsletter has you covered. We're here to empower you with actionable insights that can make a real impact on your small business.?

In this edition, we provide a comprehensive guide to navigating business credit. This financial tool allows your company to access capital and resources based on its creditworthiness, like the way your personal credit allows you to access capital in the form of credit cards, and home and auto loans.??

Learn the fundamentals of what business credit is and how to build it, explore the essential principles of credit, and understand how to correct errors on your business credit report effectively.?

What is business credit and how to build it?

A strong business credit profile can open doors to better financing options , vendor relationships, and even partnerships, as it helps lenders, investors, and vendors learn your credit history and repayment capabilities.?

You can start to build it by following these steps:?

1. Request an EIN??

To start building a good business credit score, begin by obtaining an Employer Identification Number (EIN) and incorporating your business. This creates a legal distinction between your personal finances and your business and establishes a distinct credit profile for your company.?

2. Register for a DUNS number?

DUNS stands for “Data Universal Numbering System,” and is managed by Dun & Bradstreet, the most well-known business credit bureau. Your DUNS number will be required if you apply for government contracts, so it’s best to register early and get it out of the way while you are getting your credit in order.?

3. Open a Business Bank Account?

Once your business is official, open a business bank account and make sure to keep your personal and business transactions clearly separated. This is essential – lenders and credit bureaus look for this separation when assessing your creditworthiness.??

4. Get a Business Credit Card?

Applying for a business credit card isn’t that different from opening a personal credit card. Simply search for cards that have terms that are favorable to your needs and apply!?

To learn more about how your personal credit impacts your business credit, whether you can use business credit for personal expenses, and best practices for managing business credit, read our full article .?

The Four Cs of Credit?

As a small business owner, your creditworthiness is a pivotal factor that can make or break your chances of securing vital funding . At the heart of this evaluation lies the concept of the “Four C’s of Credit ” – Character, Capacity, Capital, and Collateral. These elements collectively paint a comprehensive picture of a business’s financial health and reliability from a lender’s perspective.?

If you are applying for financing, understanding and optimizing these four components will be crucial to your success.?

Character?

‘Character’ in the credit context goes beyond personal traits; it encompasses the overall impression a business makes on potential funders. This includes the business owner’s credit history, reputation in the market, and track record in managing previous debts.?

In essence, ‘Character’ is a testament to a business’s reliability and commitment to financial obligations. It sets the tone for funding confidence and is often the first checkpoint in the journey towards securing business financing.?

Capacity?

‘Capacity’ is a critical measure of a business’s ability to repay funding. It’s about demonstrating to financing providers that your business has a strong and reliable cash flow to meet existing and future debt obligations.?

Capital?

‘Capital’ refers to the financial assets, investments, and resources that a business owner brings to the table. It’s an indication of how much the owner has invested in their business, which can influence a financier’s decision.?

Collateral?

‘Collateral’ refers to the assets that a business pledges as security for financing. Collateral serves as a funder’s safety net, reducing the risk involved in extending credit.?

Collateral can vary widely, from physical assets like real estate and equipment to intangible assets such as patents or accounts receivable. The type of collateral required often depends on the nature of the financing and the provider’s policies.?

Read our full article to go deeper on these principles and discover how to optimize your character, capacity, capital, and collateral and take control of your credit.?

Fixing Business Credit Errors?

Finding errors in your business credit record can be quite unsettling. You’ve diligently paid off your debts, kept up with timely payments, and managed your tradelines responsibly. So, when it comes time to pull credit, you expect a pristine business credit report.??

Most of the time, that’s a reasonable expectation. But unfortunately, sometimes you’ll find inaccuracies that could harm your business’s reputation and financial standing. Don’t panic; errors happen. Follow these steps to correct business credit errors:?

#1. Obtain a Copy of Your Business Credit Report?

The first step in fixing business credit errors is to obtain a copy of your credit report from reputable credit reporting agencies.??

The major credit bureaus that compile business credit reports include Dun & Bradstreet, Equifax, and Experian. You are entitled to one free copy of your credit report from each bureau annually.?

Review the reports carefully, paying close attention to every detail. Check for inaccuracies in your business’s identifying information, credit accounts, payment history, and any other relevant data. It’s crucial to identify and document each error for the subsequent steps.?

#2. Document and Gather Evidence?

Once you’ve identified errors in your business credit report, it’s time to gather supporting evidence.??

This may include copies of payment receipts, correspondence with creditors, or any other documentation that proves the inaccuracies.??

The more detailed and comprehensive your evidence, the stronger your case will be when disputing the errors.?

#3. Dispute Errors with Credit Reporting Agencies?

With your evidence in hand, initiate the dispute process with the credit reporting agencies that issued the inaccurate report.??

Each agency has its procedure for dispute resolution, but it generally involves completing a dispute form online or submitting a formal dispute email outlining the errors and providing supporting documentation.?

When drafting your dispute letter, be clear, concise, and professional. Clearly state the inaccuracies, provide a detailed explanation, and attach supporting evidence. Remember to include your contact information and request written confirmation of the resolution.?

Read the full article for all our tips on how to fix business credit errors and set your credit record straight.?

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