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Your Credit Integrity for Business Financing and Recovery

Whether you are starting a new business or planning to grow your existing business or have an on-going business trying to deal with loss of revenue due to unexpected circumstances, finding the necessary financing is a major task for your planning.  This is a common concern for many CEOs who requests help which we SCORE mentors encounter.  In this column I will make some suggestions for that CEO who is considering this task.

Before you consider different financing sources, you need to know how much money you have available from your own resources, how much you will need from outside funding sources, how easy it will be for you to borrow money based on your personal creditworthiness, and how you plan to pay it back.  In recent columns, I have commented on most of this process, but a reader asked me to expand on the “creditworthiness” consideration.  I offer several suggestions.

When it comes to financing your business, strong credit scores can give you a significant advantage. Access to credit at good terms when you need it makes it easier for your business to take advantage of an opportunity—or to weather a crisis. Along with revenue and time in business, credit is one of the most important factors when it comes to getting approved for financing and favorable supplier terms.

Personal Credit is important.  According to research by the Federal Reserve, 86% of employer firms (1-499 employees) relied in whole or in part on their personal credit when seeking funding.  Personal credit will likely play a role as you build your business. So it’s important to make sure yours is as strong as possible.

Start by getting your credit reports from each of the three major consumer credit reporting agencies— Equifax, Experian and TransUnion — and review them to find out what’s included and check for mistakes. AnnualCreditReport.com is the official government source for free consumer credit reports.

Understand your business credit.  Commercial credit reporting agencies such as Dun & Bradstreet, Equifax and Experian collect information about how businesses pay their bills. They package that information into business credit reports, and use it to create business credit scores.

There are some important differences between business and personal credit reports.  For example:

• No federal laws require free copies of their business credit reports for business owners.
• Anyone can check a business credit report.
• Names of creditors and companies that report are not listed. Instead they are categorized by type of account.
• Payments that are just a day or two late may be reported as late.

I suggest that you check if your business is already listed with the major business credit reporting agencies: Dun & Bradstreet (D&B), Equifax, and Experian. Each one allows you to search for your business on their website, or you can search all three in one place with a free Nav account at Nav.com/SCORE.

Strong business credit can help in many ways, including:

1. Access to cash.  At some point your business may need money to grow, expand or just get through a rough patch. Building your credit profile makes sure you can qualify for funding whenever you need it
2. Get more time to pay.  Suppliers often check your business credit before extending trade credit (net 30, 60, or 90- day terms). Strong credit gives you more time to pay for your products and services, so it’s easier to manage cash flow.
3. Lower your costs.  Lenders and insurance companies can check your business credit when setting your rates. Building your business credit scores can help you get approved for the lowest-cost loans, credit cards and insurance.

SCORE and one of its content partners, NAV, has developed a good e-guide called “Smart Credit Strategies for Small Business Owners”.  I recommend this as a great resource for the small business CEO who is looking for help with financing their business.