Consumers have nothing but options when it comes to reviewing their personal credit scores. For small business owners, however, getting a clear picture of how credit rating agencies view their business can be a challenge.
After applying for a car loan or home mortgage, entrepreneurs may come away from the process thinking that funding their small businesses works similarly. The truth is that business lenders approve and deny loans using different information and criteria, much of it uncharted territory for newly-minted small business owners.
And what they don't know could hurt their growth prospects.
Business Credit: A Mystery No More
Enter Creditera, a San Mateo, Calif.-based small business credit reporting company that works to bring clarity to the commercial lending scene. Services include Web-based credit reporting, monitoring and tailored loan suggestions.
CEO and co-founder Levi King, who also help get small business financing specialist Lendio off the ground, is an expert in business credit. After all, he does have a couple of successful startups under his belt.
Now, King and his company aim to educate the masses about business credit and how it differs significantly from the consumer lending experiences that inform many an entrepreneurs' attitude towards borrowing. Unlike consumer credit reporting services, where a person's score is generally consistent across the credit bureaus—give or take a few points—"business lending is not as uniform," said King.
For example, it's not uncommon for one credit bureau to report "totally different" data from another, said King. Often, one bureau receives info from one set of creditors, while another bureau gets info from a different set. To prevent blind spots, not to mention expensive lending terms or an outright loan denial, Creditera provides tools that let businesses keep an eye on their credit.
Once you log in, Creditera displays a scoreboard that provides an at-a-glance view of a business' credit health. Creditera pulls credit data from Experian, Transunion and Dun & Bradstreet to provide a summary of your business and personal credit scores.
In addition, the company claims the distinction of being the only site to offer scores from the little-known FICO's Small Business Scoring Service (SBSS), which banks use to make lending decisions. Fico SSBS is also used by the Small Business Administration (SBA) to screen the loans that the government agency insures.
"SBSS scores can be used for term loans and lines of credit for amounts up to $1 million," explained Jared Proctor, Creditera's content manager, in a blog post. "If you're applying for $1 million or less, chances are your lender will use SBSS to help make its decision."
You can drill down into each score, track its movement and explore the factors contributing to the score, in plain English. Creditera also provides real-time monitoring of more than 90 events, and it issues alerts (email, text or mobile app) when something is amiss. If you spot an error, Creditera's tool kit helps you dispute incorrect information.
Informed Small Business Borrowing
Keeping an eye on both personal and business credit reports is vital to the health and growth of a small business. For example, it's not uncommon for an entrepreneur's personal credit history to affect a certain type of borrowing.
Need funds? Banks will require loan applicants to sign a personal guarantee. When it comes to borrowing, it's "nearly impossible to get out of the personal guarantee," said King. On the other hand, you can obtain trade credit, lines of credit from vendors and suppliers, with little in the way of personal financial information.
There are several other factors that can affect small business credit, an understanding of which helps entrepreneurs make better borrowing decisions and obtain better borrowing terms.
For example, revolving debt generally doesn't hurt a business credit score as much it does a personal credit score, said King. But the key to building a great business credit profile is having insights into how it works. Then, suggested King, "simply use creditors who report and make payments on time."
Pedro Hernandez is a contributing editor at Small Business Computing. Follow him on Twitter @ecoINSITE.
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