Running a successful business comes with endless moving parts. For starters, you need a great business model, compelling marketing, top talent and a steady cash flow. You also need access to loans and other forms of credit that'll help you ride out the tough times and grow in the good times.

Here are a few key factors every business owner should know when it comes to business credit.

Your Business Credit Report is Key 

Knowing your business credit report inside out is critical if you're trying to secure favorable terms for loans and get lower interest rates. That's especially true since your business credit report is publicly available. Not familiar with business credit? No worries, you're not alone. According to a recent Capital One study, nearly one-third of small business owners have either never heard of business credit reports or know very little about them.

But for the 32 percent of small business owners who are familiar with business credit reports there have historically been some steep costs associated with getting access to them. Traditionally, business owners have had to pay to view their own report, as well as to correct inaccurate information (in some cases) which can cost hundreds or even thousands of dollars each year. The good news is there are now new free tools on the market that erase those costs entirely. But before you run out and take a peek, you should first get familiar with the structure of a typical business credit report.

Understanding the Details

Since much of your business credit report is publicly available information, anyone, at any time, for any reason - lenders, vendors, investors and even your competitors-;can take a look as long as they're willing to pay for it. That makes it especially important to make sure you know exactly what information is in your report, what it means and whether it's accurate. Here are the key elements contained in most reports that you'll want to be familiar with:

  • Company details. Particulars of your company such as size, number of employees and annual revenue can give creditors who aren't familiar with your business confidence that you're a good risk.
  • Use of existing credit. Active loan and credit accounts allow lenders to see how much your business relies on credit, looking at your utilization rate and highest credit line. They'll also look at the size of your payments and how often you're making them.
  • Public records. Bankruptcies, liens and judgments against your company give lenders a historical view of its operations and creditworthiness.
  • Payment history. One of the most important factors weighed when calculating credit scores, your payment history is the record you've established by either paying or not paying your bills on time.
  • Length of credit history. This refers to how long any particular account has been reported open. Generally, the longer an account has been open and active, the better it is for your credit score.
  • Outstanding debts. Quite simply, this is the amount of a debt that has yet to be paid. It can include total principal as well as any interest that has accrued.

The key takeaway? Business credit can have a huge impact on your company's future, so your report should always be accurate, complete and filled with the most recent and high-quality data possible.

Protecting Your Business's Credit Reputation

Think of your business credit report as a living document. It's filled with details that tell a story about your existing accounts, payment history, responsible use of credit, and any bankruptcies, judgments or liens against your business. Since your company's financial reputation is so important, it's a good idea to monitor and manage what clients, banks and vendors see in your business credit report.

Why? Almost all business credit reports are sorted and indexed by business name and address. That means there's room for error. Imagine if every time you moved, your personal credit file was reset to 0. It would be impossible to ever get a mortgage or an auto loan. This is the reality with business credit reports. It's not uncommon for a business owner to move office locations and find that their good business credit history didn't follow them. The result? A declined loan, or a delay in securing financing right when they needed it the most.

Proactively checking your business credit is the best way to protect your company's financial reputation and give you the opportunity to correct misinformation others may be seeing.

Using Your Report to Grow Your Business

Your business credit report can help you get a sense of your borrowing potential, and it can also help you be prepared while negotiating lending terms. Your business credit has the potential to help you partner with the best vendors and and creditors to help you be more successful. Understanding how business credit reports work can help you secure better financing, and ultimately help you access the capital needed to help your business grow. After all, your business credit report is more than just a compilation of data - it's an asset that you can proactively use to empower your business in a whole new way.

Published on: May 1, 2019