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Business Credit Reporting
What Is Business Credit?
Business credit refers to the summary of a business’s financial history, which indicates its ability to repay its debts and other financial obligations.
How Business Credit Works
- Whether you’re actively looking for a loan or still working to establish your business, it’s important to know how business credit works.
- Understanding how to build your business credit early on can help provide more options for financial assistance. It can also make it easier to separate your business’s credit and financial obligations from your own personal credit.
Definition and Examples of Business Credit
- Business credit is an estimation of a business’s risk, or ability to repay a loan, or other financial obligations, much like personal credit.
- A business credit report is generated with a credit score based on payment history, debts, and credit utilization, as well as general information about the business and information available in public records.
Building Business Credit
- Having good credit for your business provides many benefits, such as a higher chance of getting approved for loans, lower interest rates, and the ability to negotiate contracts.
- In order to generate a good credit score, for your business, you’ll need to work on building your credit in the same manner as you build your personal credit. If you don’t have credit established just yet, there are a few steps you can take.
- In contrast, a business credit score has a different scale, generally ranging from 1 to 100. It’s reported by these credit bureaus: -Experian Commercial -Equifax Small Business -Dun & Bradstreet
Types of Business Credit
There are various options to establish or improve your business credit. Some of the different types of business credit include:
Business Credit Card: A business credit card provides an easy way to begin building business credit as it sets a credit limit, just like other credit cards, with funds that are paid off each month when used.
Line of Credit: A line of credit works similar to a credit card as it provides funds that are available to use when needed. You only pay interest on the amount of credit you use.
Term Loan: The typical, traditional loan offered by a bank or other lender is a term loan, which allows the business to borrow a sum and pay in installments.
Vendor Credit: Businesses can purchase products or services using vendor credit, in which the purchases are made by financing the cost.
Service Credit: Service credit includes utilities and other bills in the business’s name, such as internet and phone lines.
Key Takeaways
- Business credit is a gauge of a business’s creditworthiness, or ability to repay loans based on its credit history and other factors.
- Business credit separates the financial obligations and aspects of a business from its owner, allowing the business to generate its own creditworthiness rating.
- The process of referencing business credit is similar to personal credit, however business credit is generally scored based on a range of one to 100.
- To establish business credit, there are several requirements including registering your business as a separate entity and applying for an employer identification number (EIN) with the IRS.