Business credit history. Also called a commercial credit history, refers to use of credit for business purposes that are reported separately to business credit reporting agencies. Because it takes time to build a credit history for a business, and because entrepreneurs often personally shoulder the responsibility of financing their businesses as they are starting out, personal credit histories are often extremely important to small businesses as they grow and expand. But eventually most entrepreneurs hope to grow their businesses to a place where the business stands on its own as it moves along the trajectory from initial reliance on the owner’s personal credit history to relying on the business’s own credit history in order to successfully access appropriate financing and other business opportunities.
CBA Business Reporter service sends monthly loan data to Experian’s Business Information Solutions Group and Dun & Bradstreet databases to create or build credit history for businesses rather than individuals. Coupled with CBA’s Consumer Data Reporting Service, Business Reporter creates options for entrepreneurial borrowers to grow their business and graduate more quickly to mainstream business financing sources.
Why Report Business Loans?
It’s Good for Borrowers!
Getting financing may be easier: Establishing a solid business credit history can help increase your chances of landing a small-business loan or line of credit at favorable terms or qualify for a credit card in the business’s name.
Better terms from your suppliers: Since anyone can check your business’s credit score as a way to gauge your trustworthiness and responsibility, your suppliers may offer more favorable terms if your history is positive.
Requests for deposits may diminish: Absent a strong business credit history, deposits may be required to for certain activities such as reserving hotel conference space.
Rates on insurance policies could be lower: As your business grows, insuring it could get expensive. A high business credit score may help keep rates lower.
Business and personal finances are separated: Creating a credit profile for your business adds a layer of separation between your business and your personal finances. Keeping your finances separate makes it easier to track business expenses for tax purposes.
Borrowing power increases: Strong business credit can help you get larger amounts of financing, which will allow your business to grow.
Who Can Report Business Credit?
- Micro and small business lenders who originate loans directly to the business as either primary borrower or as a guarantor.
- Lenders already reporting to consumer databases can also report to commercial databases, or report only to the commercial databases depending on your program and borrower needs
Good Questions to Consider:
- Do you pull the credit report of the entrepreneur or of the enterprise? What report would you expect a lender to pull in 5 years or 10 years for this business when they graduate?
- Who is taking that loan – the consumer or the business?
- How large are your loans? For loans under $200k, and especially under $50k, most entrepreneurs need to build their consumer report. For small business loans above $200k or loans to nonprofits, business reporting only may make more sense. The best decision is the one that meets the needs of the organization and the borrower!
While business credit practices are not subject to the same restrictions and regulations as consumer credit, CBA supports using best practices from consumer to protect businesses as well.
How to Get the Most Out of Business Reporting
1. Get your borrowers to get a DUNS number
Encouraging your business borrowers to register for a DUNS number is essential for best results with reporting to Dun & Bradstreet, and it is no cost to the business. Having a DUNS number registered is also helpful in other efforts, such as applying for government contracting and other opportunities. Without a DUNS number registered for a business, any credit data sent about them will not be able to pull together in a report – but once they are registered, all that data in the databases will be able to populate in a report.
The DUNS number is a unique, non-indicative 9-digit identification number for each location of a business, and it is free to register, though there are many different options for fee-based expedited handling and other additional services.
- Link to “How to get a DUNS Number” pdf
- Some tips to prepare for registering for a DUNS Number ( www.sba.gov/content/getting-d-u-n-s-number )
Building credit through Experian BIS can be done by simply reporting with the business’s name and, as a best practice, a tax identifier.
2. Select borrowers who will benefit most
For microlenders with different loan products, look at each in turn to identify which products make sense to report to which type of bureaus: Consumer or commercial borrowers? What is the loan amount? How do you underwrite each? Do particular programs represent more maturing businesses as opposed to small start-ups?
- Small business borrowers who have moved beyond the start-up phase.
- Businesses that need to consider other financial products and vendor relationships under the business’s name: commercial and auto insurance, renting/purchasing office space, buying company trucks or leasing business equipment, purchasing supplies, and keeping the lights on and phones open. Building a solid commercial credit history can save money on fees, rates, and deposits.
- Businesses where partners may be interesting in selling their share or the business to move on to their next adventure. Having a credit history not tied to the credit of an individual provides future flexibility.
- Expanding businesses that are looking to graduate to mainstream, larger commercial loans down the road. Prepare them for that next step!
3. Keep the education and communication flowing!
CBA strongly encourages lenders to alert and remind their borrowers that they are reporting to the commercial bureaus and review the importance of this new service for their financial future.
How do I get started?
Contact CBA’s Membership team to discuss your organization’s goals, concerns, and review what the next steps are for you.