Thanks to all the attendees of our webinar, Earning Your Cred: Understand & Leverage Business Credit, featuring Brian Ward from Experian and Spencer Robinson from Kabbage.
If you missed the webinar, you can view the video playback on our Kabbage Kam Webinars YouTube Channel and view the slides on our SlideShare. Both the slides and video are also embedded at the bottom of this article for you.
If you’re a business owner and need additional funds to grow, you might be curious about business credit…what is it, how do you get it, and how do you use it?
Business credit can be really powerful for business owners. It can help you fill short-term cash flow gaps, hire new employees, buy inventory, set-up a new website, launch a new marketing campaign, and more. But it’s really important to understand the ins and outs of business credit and how to leverage it properly.
What are the basics of business credit? Why should you maintain business credit separately from personal credit? Let us take a look at some key highlights that answers these questions:
Why is Business Credit Important?
Business credit is important as it helps your business survive, sustain, and grow. Small businesses need an infusion of cash in order to survive and business credit will be a key component to fulfill this need. Building your business credit helps you so that when you need extra cash, you can easily obtain it. You can think of this as what you saw in the movie Hunger Games, whomever is able to survive will ultimately win—business credit allows you to ensure that the odds are ever in your favor.
Business credit allows you to have the highest credit worthiness and by building your business credit you can gain leverage in your business relationships. It helps set your reputation.
Personal Credit vs. Business Credit
Every consumer has a consumer report and a consumer score. Most businesses looking to grow should have a business score report, and one that is of the business owner, thus establishing personal credit separately from business credit. You want to keep these two separate by establishing yourself as a business with a bank account, mobile, and utilities in your business. By establishing yourself like a business you are able to reduce personal risk, ultimately protecting you in the future. Also, it takes significant time and resources to separate personal and business expenses at a later date.
Understanding Credit Reporting
Credit data is collected from a wide range of sources, and it’s important to remember that your credit bureau report is at the heart of building credit.
Sources where credit data is collected from include:
Anyone can view your business credit report. Oftentimes business credit reports are used by businesses to choose vendors. Everything comes to Experian via a 3rd party. Be proactive and ask your vendors to report your account to Experian.
Personal credit scores are not the same scale as business credit scores. Business scores range from 1 to 100, while personal credit scores range from 300 to 850. Your consumer score has no impact on your business score and vice versa, e.g. if your consumer score goes up, your business score will not go up.
Some Primary Factors Used to Determine Your Credit Score
- Derogatory public records: collections, liens, judgments, and bankruptcies
- The status, recency, frequency and dollar amounts of any applicable liens, judgments or bankruptcies
- Trends in slow payment of obligations
- The number of business credit inquiries or applications that are generated by the business or owner
- The number of trade experiences, balances outstanding, payment habits, credit utilization and trends over time
- Years in business, line of business or SIC code, size of business and other demographic data
Build Your Business Credit
There are several ways you can build your business credit.
- Act like a business. Make sure you establish accounts in your business name, not your personal name. This way it also makes it easier to be found by the business bureau.
- Be visible. Ensure that your good behavior is reported.
- Borrow then pay on time. Stay current to agreed upon terms.
- Monitor your company’s profile. Check and correct outdated information and be alerted of important changes in your company’s name. This is a good way to monitor your credit to ensure it’s used properly.
Get Started Today
Use the following resources to get started today:
- Get a Tax ID number
- Verify your business credit report at SmartBusinessReports.com
- Learn how to improve your business score SmartBusinessReports.com/scoreplanner
Business Credit for Loans
Now that you’re ready to take a business loan, what are the factors that lenders look for prior to providing a loan?
Lenders will verify that you’re a business, what are existing relationships with other parties, do you run your utilities through your business name and do you pay those bills on time, loan payment history and is there a history of you paying those loans back? The answers to these questions will determine if you qualify for a business loan. Besides these factors, some lenders use other type of data to enhance traditional data.
How Kabbage Data Enhances Traditional Data
Kabbage’s technology platform allows a 360° view of a company’s business model to verify business entity. The platform uses data to determine current behaviors such as what you are doing right now and what you are doing tomorrow. For Kabbage, those factors are better indicators of business success. Some of the data that can be linked include Facebook business page, Twitter feed, Intuit QuickBooks account, and shipping profiles.
The more services you link, the better Kabbage is able to understand your business and possibly increase your credit line. By having this data available, Kabbage is able to identify patterns of your business, offer a product tailored to your business and predict when you will need funds in the future. Kabbage wants to give enough money to help your business grow, but this data is also used to cap out any amount that would endanger your business.
Who is the Kabbage Customer?
- 1-25 employees
- Years in business > Older than a year
- Industry: All small business verticals
- May or may not exist in traditional business credit databases—not all have a business credit profile
- Varying needs for capital over a period of time
Success Stories: Here Are a Few Kabbage Customers Who Used Us to Grow
We hope you found the information that Brian and Spencer provided useful, and that it helped you better understand why and how you can leverage your business credit. To learn more about Experian, visit their website.
Still have questions about business credit? Let us know in the comments, on Twitter: @KabbageInc, or email us at firstname.lastname@example.org. Sign-up for our free small business newsletter to get access to more webinars and business tips by entering your email in the form at the top of the sidebar of this blog.
Thanks for listening in! We hope to see you next time!
Still wanting to learn more about business credit score? View Kabbage’s complimentary Small Business Owners: The Fundamentals of Your Business Credit Score infographic now.