What You Should Know About Business Credit

bank loan officerYour business credit report can reveal a great deal of information about your business, its operations, financials, and many aspects of your borrowing activities. All of this information can play an integral role in your company’s ability to acquire financing.

Lenders and other businesses can use the information in your business credit reports to evaluate your applications for credit, loans, or other business-related purposes. Factors in your report, such as credit diversity, may enable a prospective lender to evaluate how your company manages various types of financing. Whether it’s short term financing in the form of vendor lines of credit, or revolving lines of credit in the form of business credit cards, diversity can be key to establishing a creditworthy business.

Business credit diversity can help lenders to assess your company’s creditworthiness, and determine what terms and credit limits to offer. Some business credit reporting agencies provide a credit limit recommendation to help lenders more easily manage their credit decisions.

There are two types of business credit limit recommendations: a conservative limit, and an aggressive limit. Because these are meant to be starting points, lenders will typically conduct their own analysis during a credit review.

In addition, many lenders use business credit reports for prescreening, in order to identify potential customers to whom they might market business credit cards or financial products. Many prescreened offers, also known as preapproved offers, are based on information in your business credit reports that signify your business meets standards set by the credit grantor. To compile a list of potential customers, a lender may either pay a business credit-reporting agency for a list of companies that fit certain criteria, or provide the database list and have the agency identify those companies that meet its criteria. Usually prescreened credit offers come to you via regular mail, but sometimes your company may get a phone call or email solicitation.

Not only will many lenders use the information in your report for risk assessment and marketing purposes, but they may also monitor your reports on a regular basis. If negative payment trends or defaults are identified, then a lender will often take precautionary steps to minimize its risk exposure.

To help avoid changes to your business credit account, make all payments on or ahead of the due date. Keep all debts at a manageable level, and take the necessary steps to help manage and monitor the information stored in your business credit profile. When lenders review your business credit profile, you want to ensure that the reports show the most accurate and up-to-date information possible about your business.

[Photo Credit: BLS]