Small Business Credit is Now Easier to Monitor and Utilize Correctly.

Small businesses applying for loans used to be in the dark, unsure of what credit score factors swung a lender’s decision to approve or deny their file.  The world of small business credit was essentially a closed book, until now.

FICO, the leading credit score factoring company, is now set to release information to small business owners and applicants, allowing them to see why lenders are making their decisions.

They’ll do so by partnering with companies such as Creditera, a web-based score monitoring service.  The information that’s collected – that lenders see – won’t be free for small business consumers, but at least they’ll be able to access FICO’s Small Business Scoring Service.

The information will help small business owners assess if they need to take action to repair or build up their credit score before applying for a loan or lease, and work to overcoming those factors that are weighing negative.

However, the model of scoring will be far less conclusive than FICO’s personal credit reporting.  When it comes to small business credit decisions, many banks and credit unions do utilize FICO, but even more so access Dun & Bradstreet’s Paydex scoring system.  Some lenders don’t even bother with a score, instead just pulling a report and making decisions based on the items reporting, not a tallied numeric calculation.

Small business applicants already can see their Paydex scores, with a $49 a month charge, which gets them monthly updates and notifications of changes.

FICO’s partnership with Creditera, expected to go into effect January 1, 2014, will cost $49.99 per month, and also get you access to your Experian business score and personal scores from Experian, TransUnion, and VantageScore.

A solid credit score will help you secure financing, of course.  In fact, the Small Business Associations reports that delayed or insufficient financing is the main reason for business failure.  Most lending decisions below $100k are automated, so a good credit score is crucial.  The difference could mean getting your loan denied, or at least doubling your interest rates if it is approved.  Suppliers also analyze your credit when awarding credit lines, saving you money and increasing profit.  Last but not least, monitoring your credit activity can help protect you against identity theft or criminal activity, as a surprising 15-30% of all commercial credit losses are due to fraud.

So what factors go into your business credit score?  This information is straight from Experian.com:

We collect three types of information regarding your business:

1. Credit obligation information from your suppliers and lenders

2. Legal filings from local, county and state courts

3. Company background information from independent sources, including state filing offices, public records, credit card companies, collection agencies, corporate financial information and marketing databases

This information is combined with data from other sources, including:

Actual trade payment experiences submitted by payees

Public record information

Collections information

Company background and comparative data that places a company’s payment performance in context within its industry

Calculating Your Business Credit Score

Your Experian credit score is calculated by a statistically derived algorithm, designed to determine risk based on multiple factors.

Credit: Number of trade experiences, balances outstanding, payment habits, credit utilization and trends over time

Public Records: Recency, frequency and dollar amounts associated with liens, judgments or bankruptcies

Demographic Information: Years on file, Standard Industrial Classification (SIC) code and business size

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Ensuring your business credit score is in good order is pivotal in today’s fast-paced marketplace where quick cash, or access to take on an asset, can literally make or break your business.  The biggest mistake businesses make in terms of credit is never thinking about their credit until they really need a loan, and then wondering why their application was denied or what they can do to save it, when it’s too late.

If you’re a small business in need of a loan in the near future for any reason, we’re happy to consult with you about how to best prepare, and if one of these credit monitoring services are right for you.

 

Article Courtesy of Blue Water Credit

http://bluewatercreditblog.blogspot.com/2013/12/small-business-credit-is-now-easier-to.html