4 Benefits of a Good Business Credit Score

Levi King
Thu, 26 Sep 2024 01:37:54 +0000
Business, Business-finance, Business-credit-accounts, Business-credit-bureaus, Business-credit-cards, Business-credit-profile, Business-credit-score, Business-funding-access, Credit-report, Credit-score, Credit-scores, Ein-score, Employer-identification-number, Planning, Small-business-owner, Business-credit

At the age of 24, I was flying high. The rapid growth of my electric sign repair and installation business had emboldened me to expand even further through the purchase of a 52-year-old electric sign manufacturing company. Instead of just fixing things, I was making them.

An opportunity to test my capabilities arose when one of my best clients allowed me to bid for what would have been the most lucrative contract of my fledgling business.

As I saw it, I was a shoo-in. I’d performed many jobs for this client, often going out of my way to fulfill last-minute requests that no one else would’ve touched. I was located just down the road from them, too, convenient as well as reliable.

I even had an ace in the hole—good business credit. My knowledge of the subject was limited, but I’d always been fastidious about paying my bills early and I knew that at least one of my suppliers had been reporting my efforts to the bureaus.

When my bid failed, I was gobsmacked. I went straight to my client to ask why.

His answer shocked me. My business credit report was a disaster. My score was in the toilet! Further investigation revealed that I had shoved it there myself when I’d purchased a 52-year-old company as part of my master plan to win precisely the sort of bid I’d just lost. I now owned the company’s lousy credit score as irrevocably as the keys to its doors.

It was a wake-up call. If I could be blindsided by something as counterintuitive as inheriting a bad credit score, what other crazy rules awaited me down the road?

If My Business Is a Separate Entity, How Does It Have a Credit Score?

Your Social Security number tethers you to your personal credit score. Business credit reports work differently; each bureau assigns its own identification number: D-U-N-S number for Dun & Bradstreet, EFX ID for Equifax, and Experian BIN (business identification number) for Experian.

You don’t need an EIN to start a business, but you should get an EIN when you’re building credit, as it can help match credit accounts to the correct business credit profile.

In rare cases—you’re a naive kid buying a run-down old company, for example—this strict demarcation between business and business owner can be a pain. Business owners who educate themselves about business credit will discover it’s an elegant solution to a host of gnarly problems.

Why Do I Need Credit to Succeed?

Credit equals cash. The short answer is that it will be virtually impossible to grow your business without it. The old axiom is true—in business, you’ve got to spend money to make money.

For my sign-manufacturing client, rejecting my bid was a no-brainer. Hundreds of thousands of dollars were at stake; I can no more blame them for passing on me than the film industry can blame moviegoers for passing on a so-called summer blockbuster that scores two percent on Rotten Tomatoes.

Business credit at its most basic level is just an aggregate score representing your relationships with your lenders and suppliers. Instead of scores based on subjective aesthetics, the sweetness or rottenness of your business credit score will hinge on the homely mathematics of borrow and return.

Benefits of Having Great Credit

Improved Access to Funding

Your business credit score can play a critical role when it comes to raising money for your business. Businesses with solid credit scores are far likelier to successfully apply for a business loan than businesses with poor credit scores. And strong business credit scores can improve the quality of the loans you receive, including a wider range of options, superior terms, and lower interest.

Higher Credit Limits Mean Finer Tools

The better your business credit score, the better the business credit cards you’ll have access to. You’ll see significant improvements in credit card bonuses as well as higher credit limits, which means more funding when you need it. And thanks to the credit utilization ratio, an easy method for improving your business credit in your sleep.

Small business credit cards can offer a great way to fund your business, as well as build business credit at the same time. Some issuers offer 0% intro APRs on business credit cards for a year or longer; as long as you pay off the balance by the time that intro period ends you’ll enjoy interest-free financing. Most of these cards are startup friendly: you can start your business today and get a business card tomorrow as long as you qualify (usually based on personal credit scores and income from all sources).

Even better, most report payment history to at least one of the major business credit bureaus. Pay on time, and keep your balances in check, and you can build stronger business credit.

Terms From Suppliers and Vendors

During my first year in business, I restocked with a certain supplier over and over, dutifully plunking down what I owed him on each visit. One day, out of the blue, he drawled, “You realize you’re the only customer I have that does this? Why not let us set the terms at net 30, meaning we'll give you the supplies 30 days in advance of when payment is due?"

Anyone who’s ever faced a looming financial deadline will know what a godsend an extra 30 days can be. I jumped on my supplier’s offer, continued paying my bills, and eventually stretched that 30-day grace period to three full months.

Small, quiet, good-faith exchanges such as these represent the beating heart of American small business. For you, they can mean the difference between failure and success.

Street Cred

First impressions matter. Building your business with business funds is businesslike, whereas mixing personal and business finances conveys amateurishness. This may not matter when it comes to impressing your neighbor—who cares what Gary thinks? But your potential customers, partners, and creditors are a whole other story.

Business Credit Score FAQs

What is a poor business credit score?

An Experian or Paydex score under 50 is considered below average or higher risk. An Experian business score of 76 or higher is generally considered to be good.

How do I check my business credit scores?

Business owners can purchase their business credit scores directly from Dun & Bradstreet or Experian.

How do I check my EIN scores?

There is no such thing as an EIN score per se. An EIN is an Employer Identification Number—you can think of it like a Social Security Number for your business. You need an EIN if you want to hire employees, open a bank account, and pay federal taxes (among other things). Good news is, applying for one is free!