The Application Process: Credit Score
June 20, 2016
Applying for credit can hinge on one number: the credit score. A high credit score translates into a significantly better chance of being approved. A low credit score means, well, the odds aren’t good.
Applying For Credit
When a small business is getting ready to apply for a loan, the credit score should be one of the main focuses.
Of course, there are a lot of other things to prepare for, including composing a strong business plan, getting financial statements and tax records in order, and filling out the application as to why credit is needed and how it will be used.
The credit score is an integral part of these considerations.
A business plan must take into account the company’s ability to obtain funding and at what rates. A high credit score not only increases the probability of getting credit, it also helps obtain more favorable lending terms.
A company’s credit score is, in part, a reflection of financial performance. A lender will run a credit report on a business in the application process.
This is to determine if the company has been a reliable servicer of their obligations.
The ability to make timely payments shows through in the credit report, and a high credit score reflects financial strength.
Businesses should begin managing their credit report and credit score immediately. This doesn’t mean start working on getting a better credit score during the application process.
A high credit score is achieved over time. Small businesses need to take the necessary steps to build a strong credit profile right away. This way, when the time comes to apply for credit, businesses have a good credit score in their pocket.
Of course, startup small businesses may lack credit history that is needed to earn a high credit score.
Also, other businesses simply might not have all that great a credit score. In the application process, these concerns must be addressed. The reason why the credit score isn’t as good as it should be absolutely has to be explained.
Furthermore, the business must inform the lender what steps are being taken to build and improve the credit profile so that a good score will one day be achieved.
Online Credit Monitoring
June 20, 2016
The advantages that small businesses get by being able to check an online credit rating are many.
Businesses trying to get credit, are actively preparing, or thinking about obtaining financing, as well as those that are looking to manage risk, should take advantage of online credit monitoring.
Prepare For Success
Credit monitoring is one of the most powerful tools that small businesses have. In terms of self-monitoring, online tools help businesses:
Review the credit file for accuracy
Stay on top of changes to the credit file which may impact the ability to get capital
Create a strategy to build, maintain, or improve a credit score
Learn who is running inquiries on the company
Protect against identity theft
Credit monitoring is great for assessing external businesses too. Some businesses make the mistake of quickly checking another’s online credit rating, for instance, and then falsely assuming that the other company will never experience difficulties. Credit monitoring helps:
Check and monitor current relationships
Determine if a company is experiencing financial trouble
Diversify supplier relationships if existing suppliers are becoming unreliable
Avoid financial conflicts by identifying problems early on
Reading Into A Rating
An online credit rating reveals a lot about a company. It is primarily a measure of risk. Companies with lower credit scores are generally riskier compared with those that have high credit scores.
The purpose of the credit score is to provide businesses with a way to quickly assess the reliability of another company.
Of course, there is a lot more information in a credit report than just the credit score. The credit profile details a wide range of information and data about a business.
Most of that information is then inputted into a model to determine the company’s credit score. Credit monitoring allows small businesses the opportunity to assess, not only the credit rating, but all the other information that goes into the calculation.
Repair Credit Before Applying
June 20, 2016
A small business that is applying for credit must diligently work to repair their credit profile in advance. Lenders use a company’s credit score to determine if they will extend credit and at what terms. Going into an application with a poor credit score really reduces the probability of being approved, while a good credit scores increases the chance of qualifying for a loan or credit line.
Credit Report Repair Services
How can businesses improve their credit before applying for a loan? The answer to this question depends in large part upon how much time a business has before they need to apply for a loan.
In many cases, a business will need funding right away. Emergencies, such as supply disruptions from a lack of inventory or the inability to meet payroll, could necessitate immediate action.
There are a few things a business can do to potentially improve their credit score in a very short period of time. They can:
Review the credit profile and dispute any errors or omissions
Contact creditors where the account is beyond terms and ask for an extension
Negotiate higher credit balances on heavily drawn accounts to improve utilization ratios.
In reality, there are few short-term fixes. A small business is much better off initiating credit report repair services well in advance of applying for credit. Building a good credit score involves:
Opening credit accounts and establishing trade relationships
Making timely payments on those accounts over an extended period of time
Avoiding using too much credit with a single creditor
Not having any liens, collections, or judgments against the company
These simple credit report repair services will put businesses back on the right path to earning a good score.
Armed with a stronger credit profile (along with a comprehensive business plan and all necessary documentation and financial statements), applicants have a much greater chance of getting the credit their small business needs.
Benefits of a Merged Credit Report
June 20, 2016
A merged credit report is simply a combination of reports from multiple credit reporting agencies.
Normally, when a report is requested from a credit reporting agency, a single credit report is produced.
That single credit report represents the information collected and maintained by a single credit reporting agency.
A merged credit report puts together the information collected by multiple credit reporting agencies.
The purpose of merging a credit report is so that a credit account holder can easily see all of the information that multiple credit reporting agencies have collected.
This is advantageous for one reason in particular. Credit reporting agencies do not share information, and so each one can and will have different information.
Consider a hypothetical scenario where a credit account holder makes a purchase on credit. The seller is the data furnisher providing the history of this transaction to the credit reporting agencies.
If the seller only provides this information to one of the credit reporting agencies, there will be an incongruity of information.
The impact can be dramatic. If a credit account holder is making timely payments to creditors, but data furnishers are not notifying all of the necessary credit agencies, the result may be vastly different credit scores by agency.
Credit agencies that have accurate, up-to-date information will more fully reflect the actual credit score of a credit holder.
This is in contrast to those reporting agencies that do not have all the information, and thus do not have accurate credit scores.
Another benefit of a merged credit report is that the credit account holder can streamline their credit monitoring policies.
Instead of having to run multiple credit reports, a single merged credit report reveals all of the information in a side-by-side format that enables easy comparison.
The format of a merged credit report is essentially the same as that of a single one, only multiple sets of information are displayed. These advantages make merging credit reports worth considering.
Unsecured Business Line of Credit
June 20, 2016
Unsecured Business Line of Credit: What Is it and Do You Need One?
What is an unsecured business line of credit? Naturally, it’s an unsecured line of credit that is used for your business, but what exactly does this mean, and do you need one?
When you’re trying to make a business work, you need every advantage you can get, and an unsecured business line of credit can really come in handy in certain situations.
Here’s the information about what an unsecured business line of credit is, how to know when you need one, and how to get one.
What Is an Unsecured Business Line of Credit?
A line of credit is an amount of money made available to you by a lender that you can draw on at any time, up to the limit of the line of credit. When you apply for a business line of credit, you make it clear that you will be drawing on this money in order to keep your business running.
Lines of credit can be better than outright loans because you can take out, and subsequently pay interest on, only the amount of money you will need. An unsecured business line of credit is a line of credit offered to you by a lender without any collateral put up against it.
That is to say, if you should default on the money borrowed, the lender cannot seize any of your assets to pay the amount owed.
Do You Need an Unsecured Business Line of Credit?
Hopefully you do not need an unsecured business line of credit right now. The time at which you would need an unsecured line of credit for your small business is if you do not currently have sufficient equity in anything you might use as collateral. This can happen when a business is overextending itself a bit in order to follow through with a necessary expansion, or when the business is trying to weather a downturn in the economy. At times like these, some additional financing may be needed to get the business through. This is when an unsecured line of credit can really come in handy.
Can You Get an Unsecured Business Line of Credit?
If you want to be able to get an unsecured line of credit when you need one, the time to start preparing is now. A lender will only extend an unsecured business line of credit if your business shows a top business credit score (they will usually be looking on the PAYDEX scale, provided by Dun & Bradstreet), and your business credit profile shows a history of responsible borrowing and timely payments.
If you anticipate that you may someday need an unsecured line of credit, your best move will be to order your business credit report and score today to see where you stand.
If your score isn’t high enough, learn what you need to do to boost it. This is usually simply a matter of making your current payments to creditors earlier. If you monitor your business credit profile consistently now, you’ll be prepared when you need that line of credit.
Looking Up an Online Credit Rating
May 17, 2016
Being able to find credit information online is a huge plus for small businesses. This enables real time and continuous credit monitoring and risk management that might not otherwise be possible if businesses had to wait to speak with someone during regular hours or receive updates in the mail.
To self-check an online credit rating, follow these steps:
Register with a major business credit reporting agency. This can be done by visiting a website like www.dnb.com and enrolling. Small businesses will need to verify they are the legitimate owner by filling out the necessary forms.
Once this process is complete, small businesses can sign up for active credit monitoring. This option lets businesses check their online credit rating at any time. If active credit monitoring is not selected, businesses can elect to run individual credit reports to monitor their credit rating.
Review the credit report and look for the credit rating. Finding the credit rating on the credit report is pretty easy. Most credit reporting agencies prominently feature the credit score near the top of the report.
To check another company’s online credit rating, follow these steps:
Similar to running a self-credit check, small businesses can find the credit rating of other businesses. Instead of running a self-report, simply enter in the business information of the desired company. To select the appropriate company, obtain the name, address, and any other information that might help identify the business. Optimally, obtain the company’s federal employer identification number.
Run the report and look for the credit rating near the top of the report.
Additional insight might be gained from running a credit check on a small business owner’s personal credit. The reason is that many small businesses with little or no credit history use the personal credit of business owners. In this scenario, it would be very important to know the financial strength of the business owner since their credit situation directly impacts the business.
Guidelines for Choosing Among the Three Major Credit Reporting Agencies
May 17, 2016
Individuals or businesses not listed with one of the major credit reporting agencies may risk being denied funds or will be required to furnish a personal history check and personal guarantee. That’s why choosing to register with one of the major credit reporting agencies is an important step for any business looking to assess risk, obtain funds, and ensure smooth financial transactions in their financial investments. Over thirty agencies exist in the United States, but only three are major establishments.
Each collect the same basic information, including name, social security number, date of birth, employer, current debts, how many times a profile has been accessed, and payment history. All three work with the Fair Isaac Corporation to calculate FICO scores. However, these scores will vary because all three collect information differently and each use their own methods to assess that information.
Because these methods vary, FICO scores can differ between them by as much as 100 points—an enormous difference for an individual or business looking to obtain funds or have a financial transaction approved. That’s why it’s important to have guidelines for choosing one.
While banks use the bureaus to determine creditworthiness, many businesses have even larger investments at stake, especially when bonds are issued to investors and business ratings help safeguard those investments. The first step in choosing between the major credit reporting agencies is to determine which bureau the majority of suppliers, creditors, and lenders pull their reports from. For businesses, this can be done by contacting its existing business partners and asking for the information.
These establishments should then be asked to provide their evaluation of the following criteria:
Criteria 1: How accurate is the data being collected? Call each agency directly and ask what methods they use to ensure that the information that other companies send them is accurate. Next, contact lenders, data furnishers, and so forth, as well as existing business partners and ask what their experience with the bureau has been like. If those registered with a specific bureau have a long enough history with the bureau, they will have some idea as to how often they have dealt with disputes that proved to be reporting mistakes.
Criteria 2: How accessible is the database? A good way for businesses to determine this is to contact its existing business partners and ask for their personal evaluation. Were they easily able to get a representative on the phone? Does the bureau require a member to buy its products in order to qualify for personal assistance?
Criteria 3: What are their marketing practices? Do they offer free services or is there a grace period where you eventually have to pay for those services?
Criteria 4: How are they perceived by other institutions? If the bureau has a good reputation with the establishments who use them, they should score high in their accuracy of data, method of scoring, and general accessibility.
Apply for Business Credit: Advice for Business Owners
May 17, 2016
As an individual who can benefit from some financial flexibility, you probably have some personal credit. But what about as a small business owner? Do you need business credit? While you might be able to start a business just on personal funds and loans from friends, eventually you will want to apply for business credit for a number of reasons.
Reasons to Apply for Business Credit: Growth
Sure, you might have enough money in your personal account to get started in your business, but what if you get more orders than you have inventory? If you need to fill your stockroom fast, you’ll need money to pay for those extra goods. And what about when you’re ready to expand? Finding new space, advertising and buying more equipment costs money, and even if you’re doing well right now, you might not have quite enough in the coffers to cover all those costs. Furthermore, it’s a good idea to have a little extra capital available in case of unforeseen circumstances, be it an unanticipated setback or an unexpected opportunity.
Reasons to Apply for Business Credit: Favorable Terms
Perhaps you took out a second mortgage on your home to start your business, or used credit cards to get going. A line of business credit can pay those off and potentially get you more favorable rates, taking less pressure off your personal finances and creating payments that you can easily make every month. It’s usually a good idea to keep your personal and business finances separate anyway. If you’ve borrowed from friends or family to get your business started, this may be a good time to pay off those debts and create a clear separation between your personal and business relationships.
Reasons to Apply for Business Credit: Reputation
In the business world, having a credit picture puts you on the map. When potential business lenders and other companies in your market space want to know about you, the first thing many of them are likely to do is pull up your business credit profile. If you don’t have one, those companies are likely to look elsewhere, towards a known quantity. Counter to what may seem intuitive, even having average credit is better than having no credit. However, if you are in a position where you don’t know if you need credit right now, there is no reason why you can’t have great credit. Simply apply for business credit, then make your credit payments every month, and your behavior will be reflected favorably on your business credit report. In fact, if you are in a good position financially right now, you can even make your payments before they are due and find yourself in the top portion of business credit ratings. This way, not only will other companies want to do business with you, but when you find yourself facing a major expansion and in need of a large business loan, you should have no trouble getting it, and at terms that will work for you.