Each time you apply for credit, banks and financial institutions look at your business credit profile to determine whether or not to lend you funds.
Understanding the credit application process and what's contained in your credit file or report will help you improve the chances of being approved for funding. Here are the ABCs of your business credit report.
A - Lenders will be alerted to any adverse information in your credit report during the credit assessment process, such as bankruptcies, payment defaults and any negative directorship information. The more adverse information is contained on your report, the less creditworthy you are, as it indicates to lenders that your business may be struggling.
B - Lenders contact credit bureaus such as Dun & Bradstreet to access your business report before making a decision as it indicates to lenders your financial position and hence, the ability of your business to repay business loans.
C - Your consumer credit file is also factored into the credit application process if you use your personal line of credit for business purposes such as if you're a sole trader. It's a good idea to obtain your personal credit report from a credit reporting agency to get a complete picture of your credit history - and what you can do to maintain or improve it.
For more information, read 'Will my personal financial history affect my startup?'
D - Directorship information is also revealed in a business credit report, allowing lenders to understand the identity of directors on your firm's board such as any bankruptcies and dealings with any insolvent companies.
E - Your report alerts lenders to the level of external funds available, such as your tangible net worth and D&B rating of your financial strength and creditworthiness.
F - By pulling up your business credit report, lenders can determine your financial health by looking at the probability of experiencing financial stress and probability of late payments (calculated by D&B's proprietary scores).
Before making a decision to extend credit, banks and financial institutions - and even other businesses - consult a credit bureau to obtain a credit report. This means that any business that isn't deemed creditworthy or financially sound will be declined.
By familiarising yourself with the credit process and obtaining a copy of your report, you can ensure that your business has access to the funding it needs and is able to pay it off.