A business credit report is an essential tool for banks, lenders, suppliers and credit grantors in assessing the creditworthiness of small businesses. The information contained in a report provides crucial details needed to make informed credit decisions.
It illustrates a company’s ability to meet its contractual obligations based on payment history and public records. The data in a small business credit report is vital to getting the funding you need to successfully run and grow a business. It impacts the following financial decisions:
- How much business credit a supplier will extend to you
- What repayment terms you’ll receive
- What interest rates you’ll pay
- How much credit or funding a bank or lender will extend to you
- How your customers view your business
- What insurance premiums you’ll pay
Business credit reporting agencies — such as Dun & Bradstreet, Experian Commercial, and Equifax Small Business — collect data on millions of businesses and compile the data into a business credit report. All the information collected in a company’s report is used to calculate a business’ credit rating.
The typical information that makes up a small business credit report includes:
- Company information including number of employees, sales, ownership, and subsidiaries
- Historical data of the business
- Business registration details
- Government activity summary
- Business operational data
- Industry classification and data
- Public filings (liens, judgments, and UCC filings)
- Past payment history and collections
- Number of accounts reporting and details
Typically, all business credit reports have the same type of information. Although each business credit reporting agency has its own process for collecting and verifying data, the main data sections are pretty standard.
The first thing that displays on a small business credit report is the business profile or company information section. This section lists the company’s legal name, address, incorporation details, ownership, subsidiary details, and number of employees.
Other standard information listed in the business credit profile section includes financial data. This data includes annual sales and may include a financial statement.
The payment history section shows a company’s payment history for the past several years. This includes invoice activity, outstanding balances, payment terms, and credit limits.
The public records section lists legal filings, bankruptcies, collections, and UCC filings. If a business has legal judgments or collection accounts reporting in this section, a creditor may view the business as being in financial distress and may be hesitant to work with it.
Finally, based on the information listed in a small business credit report, each business credit agency will issue a business credit score or rating that predicts payment behavior.
Business credit reports and scores are a measure of a company’s financial stability. The main goal for small business owners should be to establish records of timely payments with all of their financial obligations in order to establish a strong business credit report and score.
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