Building a business credit profile can help your business obtain favorable interest rates from lenders. While shortcuts exists to develop a business credit profile, doing it the right way will pay off in the end.

Business Credit Profile Explained

In much the same way that anyone who borrows from a commercial lender - a bank, credit union or credit card issuer - has a credit report on file and a credit score, business borrowers have a credit profile and score as well.

There are several companies that build business credit profiles, but the primary service is Paydex from Dunn & Bradstreet. Your personal credit history and score take a variety of factors into consideration. A business credit profile is based only on the timeliness with which your company repays its debts.

The Paydex scoring system goes from zero to 100. A score of 80 means your business pays on time and is considered a very good rating by lenders. Above an 80 means your business pays in the early payment period of loans. At a score of 70 or below, your business is 15 days late on payments and this begins to be an area of warning for lenders.

Applying for a DUNS Number

It can seem like an impossible situation: Only business borrowing is rated by Paydex, and businesses need a Paydex rating to begin borrowing. There is a way through the maze. Begin by applying for a DUNS number from Dunn & Bradstreet. DUNS stands for Data Universal Numbering System and is a nine-digit identifier for your business. Be aware, there is a cost to get a DUNS.

First Steps to Business Credit

You can use your personal credit to open an account with suppliers of your business. Many suppliers, such as an office supplies distributor will work with you on this. With a positive track record on your personal account, you may be able to open a business credit account with those suppliers. Just make sure they report their borrowers to D&B and that you give them you DUNS number. As you pay on time with these suppliers, you are building a positive business credit profile.

Remember the Four C’s

Now that you are building your business credit profile, you want it to work positively for your firm. A good Paydex score will get you in the door of most business lenders. In addition, they will look at the so-called Four C’s of a company:

Character - This is your business’ track record in its market. You build business character over time.
Capacity - This means there is sufficient income to meet all current financial obligations resulting from the firm’s operations.
Capital - Does the business have the ability to meet its debt requirements?
Conditions - This is an evaluation of the overall environment of the industry in which the company competes.

Avoid Rookie Mistakes

A business that first establishes its business credit profile often does so as a defensive move, establishing the profile before it is actually needed so that it will be strong when borrowing is necessary. Be sure to keep some borrowing active on the profile. If you have a strong Paydex number but have no credit activity for a length of time, it can lower the score.

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