FINANCIAL LITERACY LEARNING CENTER

SMALL BUSINESS

CREDIT REPORTING

PROVIDES INFORMATION FROM BANKS, LENDERS, INVESTORS, LANDLORDS, BUSINESSES AND GOVERNMENT AGENCIES

BUSINESS CREDIT REPORTS – GETTING STARTED

It’s okay to use your personal credit while your business is getting started; however, it’s very important to eventually establish business credit for a number of reasons. Not only will the stability of your business be compared to competitors in the market, but customers will also have an easier time finding your business when they do searches. To start the credit-building process, you first need to obtain a tax ID number from the IRS and a DUNS (Data Universal Numbering System) number from Dun & Bradstreet. Once you have those, you need to subscribe to a reporting service by submitting financial statements, accounts to be included and registration information. The three reporting services you can choose from are Dun & Bradstreet (D&B), Experian Business, or Equifax Business. They will contact the creditors you list for the most updated information. There are different subscription packages you can purchase, so be sure to do your research and choose one that meets your needs and budget.

A BUSINESS CREDIT REPORT INCLUDES:

  • Commercial credit risk score
  • Indicators to predict the potential for business failure
  • Credit filings in existence for secured property
  • Business ownership information
  • Other businesses owned by the same organization
  • Public records of security interest filings

PERSONAL CREDIT IMPACT ON BUSINESS

Your personal credit is your foundation for building a business. Before applying for business credit or loans, it’s a good idea to review your personal credit report to ensure the accuracy as it could have an impact on your business. Lenders will more than likely review your personal credit reports and contact your bank to check how you handle your accounts and existing loans. Your personal liability can also help with building business credit and establishing credit with vendors and suppliers. Once you’ve checked the accuracy of your personal credit score, you can work on improving it by paying your bills on time and minimizing how much you owe in comparison to your credit limit.

PERSONAL GUARANTOR ADVANTAGES AND DISADVANTAGES

You may be required to personally guarantee a loan to your business, which has both advantages and disadvantages. Doing so will indicate your support of and investment in the business to the lender. It could help you to establish credit, obtain better loan terms and may even ease start-up expenses or cash flow. On the flip side, you are fully responsible for paying back the loan even if the business is not performing well. You risk losing personal assets, such as your house. You also might be required to have a co-signer, like your spouse, which could cause implications between the two of you or other partners and owners.