What makes up your business credit score? What gives you the best chance of getting a loan? Here are some factors that influence your business’s credit picture and what you can do to make the most of them:
1. Payment History – Your payment history is an important part of your business credit profile and is what your D&B Paydex score is based on. Many credit opportunities come with a minimum Paydex requirement. What you can do: Always pay providers EARLY. On time is “ok”, but it’s better to pay early (before you get the bill).
2. Credit Applications – Believe it or not, multiple credit applications can be a red flag that will prevent you from being approved for a loan. Too many in a short period of time will make your venture look desperate and signal to potential lenders that things are going downhill. What you can do: Plan credit use accordingly and keep requests to the minimum necessary to achieve your goals.
3. General UCC Filings – One thing many people don’t realize is that they need to pay attention to the order in which they take out certain types of loans and what UCC filings lenders will file. Some lenders may file a “blanket” UCC filing, which essentially says they have an interest in ALL of your assets. These general UCC filings will take precedence over later ones, drastically reducing your ability to obtain credit elsewhere. What you can do: Plan your credit carefully and negotiate UCC filings according to your needs. For example, if you need particular assets excluded from a UCC filing to use as collateral for another loan, explain that fact in advance so that those items are excluded from any blanket filing, or alternatively obtain the loan or account with the more specific UCC. . presentation first. Some experts recommend opening accounts with competing UCC filings at the same time and negotiating the details with each party simultaneously.
4. Company Financials – With D&B, it’s important to make sure the financials on your credit file are up to date. If they aren’t, it could reflect negatively on your business when the lender compares the available data. What you can do: Update your financials on your credit reports to reflect your current circumstances, and plan to do so periodically.
5. Legal structure of the company: The legal structure of your company (LLC vs. INC vs. partnership, etc.) can also affect your business credit. Lenders are less likely to lend money to sole proprietorships and partnerships than to corporations or limited liability companies. What it can do: If it’s not built in, it should be. The advantages go far beyond your ability to obtain credit.
There are other factors that affect your ability to obtain credit, such as how much debt you already have, how invested you are in your business, and even your personal credit can play a role in your approval or rejection. Here we have covered five of them. In the end, the better the overall picture you can paint, the better your chances of getting approved for loans.