Every entrepreneur wants their business to be a success. Excellent business credit scores play a vital role in securing sanction for financing and trade credit. A strong business credit report suggests the vendors, business partners, lenders, and suppliers whether you can repay then within the committed time.

business credit

Understanding business credit reports

Sometimes, business owners confuse between credit scores and credit reports. The way you checked your credit report to stay aware of the financial records, you can do the same for your business. It’s because the moment your business commences, the credit bureaus start to generate your business credit report. It gets done by making use of financial data and other public records.

When you get a line of credit or business loan, also known as trade credit, crucial data about your business payment history gets assembled by the business credit reporting agencies, such as Equifax, Experian, and TransUnion. From this report, you also get to know your business credit score.

The fundamental aspects of a business credit report

A business credit report generally comprises of the debts that come under your business’s federal tax identification number. It’s also called the employer identification number. It also includes the personal lines of credit that don’t get listed in the report, and it holds true for the business credit cards under your name.

The data present in the trade credit report is sent voluntarily to reporting bureaus by a business house, which has a debt. It means a couple of lines of credit might not get added to the report.

Importance of your business credit report

Your business credit report allows the creditors, vendors, and lenders to determine your business’s creditworthiness. For instance, a business house with an excellent credit report can negotiate better to suppliers and creditors compared to a company with negative items in their credit report. Do you own a business or planning to start one? If yes, you should be prepared to check your annual credit report to check whether it has any negative aspects that need immediate correction. 

You need your business credit report for the following:

  • To negotiate about payment terms with your business suppliers, vendors as well as customers
  • To opt-in for a pre-approved loan
  • Helps creditors analyze your application

You can get better payment terms with your vendors using a business credit report. It enables you to float the payments towards the vendor as you wait to get the cash from the consumers.

Do you have a B2B business assessing your customer’s creditworthiness? If yes, you can opt-in for the consumer business credit report for securing your business from any delinquent or late payments.

Reading your business credit report

The moment you receive your business credit report, it is essential to assess all the data in full details. The reports from the credit reporting agencies usually include the same data. Discussed below are six essential data categories that you can expect in your business credit report for you to read it.

  • The business profile

It is the first thing that you get to see in the report. And within this, you can check your company’s trade and legal name and headquarters address. The extra data in the business profile comprise of the following:

  • Business type
  • Years of business operation
  • Incorporation details
  • The employee count
  • Subsidiary details

The financial data also gets added to the standard business profile segment. And this comprises of the annual profit and sales derived from financial statements, dating back to the past three years. In the case of a small business firm, the business owners can decide if they prefer or not prefer to self-report the data. You must realize, updated and correct data will improve your business credit report.

  • NAICS and SIC industry codes

The business profiles sections also comprise of the business house’s NAICS and SIC industry codes, and that denotes the industry type. You need to get the correct code as various industries have an individual credit risk classification. The businesses in an increased risk classification can have a difficult time getting the proper insurance amongst all other things.

Some of the increased risk SIC classifications comprise of the following:

  • Restaurants
  • Car sales
  • Collecting and money lending
  • Real estate and other kinds of investing
  • Travel industry

Is your business misclassified? If yes, you have the option to get your business profile updated on the agency’s site. You can also directly get in touch with the agency. You get industry codes through the public record data, for instance, the replies to the administrative records and Census surveys. Hence, it’s essential to ensure that you recognize your business accurately on similar documents.

  • Commercial, financial record

It keeps complete track of your company’s payment history with the insurers, lenders, and creditors. This section also comprises of financial activities like the credit you got from the lenders, the product type, the loan policy, and terms along with the initial and remaining balance.

  • Trade payment history

It highlights the business payment history in the past three years. Here you get details about all vendor payments. And each payment comprises of the sale date, the sale amount, payment date, and terms.

  • Collections, legal filings, and bankruptcies

This segment gets used for analyzing the financial health and liquidity of your business. This section reports about UCC filings dating back to past five years, that are the liens in the business assets to act as collateral for a loan. The report highlights other legal filings, for instance, tax liens and bankruptcy judgments as well.

  • The business credit score

Last but not least comes the business credit score. Depending on the information present on your annual business credit report, the credit agency issues a score that highlights the payment behavior. It’s the bureau that decides the “good score.” It’s always better if your business has a favorable business score.

These are some of the important aspects of the annual credit report for your business. It’s ideal if you could check it once a year to make relevant business decisions on monetary investments and business expansions.

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