Why do banks look to the business credit bureaus like Dun & Bradstreet,® Corporate Experian® and Corporate Equifax® as part of their business lending process?
The main reason lenders use these rating and reporting services this is to minimize risk. Known informally as “The Big Three,” they have built a reputation for offering the most accurate and up to date information available on business credit history. Lenders pay a fee to receive detailed reports on a company’s payment history with other lenders, types of business credit they’ve used in the past and information on current loans. Business credit profiles are considered an important indicator of a company’s financial health and how likely they are to be able to pay back a business loan in the future.
Why is it important to build a business credit profile for my company with Dun & Bradstreet,® Corporate Experian® and Corporate Equifax® (the big three)?
Building a strong business credit profile is very important, not only to secure vendor lines of credit, banking lines of credit and other types of business loans, but also to get the most favorable terms and interest rates. Even if you’re not seeking financing at this time, it’s important to know that potential alliance partners and customers may also pull profiles on companies they’re evaluating for new business. If your company has a weak profile (or none at all) you may be losing out on other opportunities without even realizing it. You won’t know these companies are looking at your profile unless you subscribe to a paid business credit monitoring service, which can be a good idea for certain businesses.
What is the difference between vendor credit and cash lines of credit?
Both are very important to your business. You probably already work with several vendors for day to day materials and supplies but odds are that most of them are not reporting your good payment history to the big three. In fact, over 90% of vendors do not report and many businesses are shocked to learn that their business credit score and rating is either weak or nonexistent. Building lines of credit with vendors that report to the big three will help you establish a strong business credit profile in addition to managing your cash flow and using the vendor’s credit to help grow your business.
Items like payroll and marketing require cash, not vendor credit. Cash lines of credit provide funds that can be used immediately for any investment or expense your business requires. Some examples of cash lines of credit include loans, cash advances, merchant account advances, accounts receivable financing, equipment financing or retirement plan financing. Fast Business Credit offers a $50,000 guarantee. The key question you will want to ask is how much of that will apply to vendor lines of credit and how much will be cash lines for your business. The answer depends on certain business and personal criteria. Yes, your personal credit history does come into play, especially with business lines of credit. Personal guarantees are almost always required for most cash lines of credit.