Business credit accounts for a business’s ability to pay back its debts, not the owner’s. It is not subject to the Fair Credit Reporting Act and creditors consider your business credit scores and and payment history

1. 5Critical Factors that
Determine your
BusinessCreditworthiness

2. Ty Crandall
CEO, Credit Suite
(877) 600-2487
info@creditsuite.com
www.creditsuite.com/EIN

3. BusinessCredit
 Business credit is credit under a business’s name
 Scores reflect how well the business can pay its
debts …
 … and not the owner
 It can be wildly different from your personal
credit scores
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4.  It is not subject to the Fair Credit
Reporting Act
 As a result, anyone can pull your
business credit report
 This means lenders and vendors,
but also …
 … competitors and, really, anyone
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BusinessCredit

5. Creditworthiness
 Creditworthiness is a lender calculation
 It determines the possibility a borrower …
 … might default on debt obligations
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6. According to Investopedia, it is:
“… a valuation performed by lenders that determines
the possibility a borrower may default on his debt
obligations. It considers factors, such as repayment
history and credit score. Lending institutions also
consider the amount of available assets and the
amount of liabilities to determine the probability of
a customer's default.”
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Creditworthiness

7. Quite simply, the more creditworthy your business
is, the more likely you will get favorable credit
terms
And it can mean the difference between getting a
loan or credit at all …
… or not
The more creditworthy your business is, the more
you’ll save money with more favorable credit terms
www.creditsuite.com/EIN
Creditworthiness

8. #1 – BusinessCreditScore
This is the overall measurement of whether your
business should get credit
Business credit scores from Dun & Bradstreet,
Equifax, and Experian are the ones most commonly
reviewed by lenders and vendors
The scores can vary as these credit reporting
agencies’ calculations can differ
But they should roughly be the same, as they consider
the same things
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9.  For new businesses and for sole proprietorships, lenders and
vendors will also look to your personal credit score
 This is because your business credit score is understandably
low or nonexistent
 If a lender or vendor asks for your Social Security number, it
means they are taking your consumer credit into
consideration
 This means there will be an inquiry on your consumer credit –
and inquiries can lower consumer credit scores
 It can also mean the creditor wants a personal guarantee from
you
www.creditsuite.com/EIN
#1 – BusinessCreditScore

10. Dun & Bradstreet
D&B uses predictive modeling to
calculate your score
They consider (among other things):
Likelihood of business failure
Business financial stress
These factors are checked against
similar companies in your industry
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11.  D&B provides a rating. It is based on:
information in your company’s interim or fiscal
balance sheet
an overall evaluation of your firm’s creditworthiness
 The scale goes from 5A to HH; these Rating
Classifications show your company size based on worth
or equity as computed by Dun & Bradstreet
 They assign such a rating only if your company has
supplied a current financial statement
www.creditsuite.com/EIN
Dun & Bradstreet

12.  The Delinquency Predictor is intended to figure out how likely your
company is to be late in paying your debts
 This takes historical information to try to predict future outcomes
 D&B considers objective and statistically derived data, rather than
subjective and intuitive judgments
 They use a scoring system to rank and order accounts based on the
probability of late payments
 However, Predictive Scoring only represents a statistical probability,
and not a guarantee
www.creditsuite.com/EIN
Dun & Bradstreet

13. PAYDEX Score
 A PAYDEX Score is Dun & Bradstreet’s dollar-weighted
numerical rating of how your company has paid the bills
over the past year
 D&B bases this score on trade experiences reported by
various vendors
 The D&B PAYDEX Score ranges from 1 to 100
 Higher scores mean a better payment performance
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14. Experian
Among other factors, Experian considers:
 Your history of trade payments
 Payment trends
 Inquiries by creditors
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15. Equifax
 In addition to other factors, Equifax takes into
consideration:
Credit usage
Median open balance
Current credit limits
Your company’s 24 month history
www.creditsuite.com/EIN

16. #2 – Repayment History
How well does your business
pay its bills?
Are you late, early, or on time?
Do you pay in part, or in full?
How has your company
performed over time?
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17. The credit reporting agencies
generally look at the previous 12
months
They consider your payment trends
…
… Are you showing continuing
payment failures …
… or are you turning it around?
www.creditsuite.com/EIN
#2 – Repayment History

18. #3 – Length ofCredit History
Is your company a startup, or
new to credit?
Then by definition your credit
will be poor or incomplete
As you might expect, the main
cure for this is time …
… so be patient
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19. A short business credit history
will often be why a creditor will
want to look at your consumer
credit
Or they might want a personal
guarantee
So they are likely to request a
Social Security number to look up
your consumer credit scores
www.creditsuite.com/EIN
#3 – Length ofCredit History

20. #4 – Derogatory Entries
Creditors will look at a number of
negatives in your report
As you might expect, these
negatives are of great interest
to creditors
And unlike with consumer credit,
there is no time limit on how long
they can stay on your business
credit reports
www.creditsuite.com/EIN

21. Typical derogatory entries
include:
 Tax liens
 Judgments
 Bankruptcies
 UCC filings
 Accounts that have gone
into collections
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#4 – Derogatory Entries

22. Dun & Bradstreet
“Currently Dun & Bradstreet retains up
to 24 months of payment experiences in
the trade repository. Dun & Bradstreet
will use up to 874 payment
experiences.”
That seems to mean that after 24
months payment information will not
affect a business’s credit score, at least
so far as a D&B PAYDEX score is
concerned
www.creditsuite.com/EIN

23.  In addition, the D&B website states:
 “…on an annual basis Dun & Bradstreet cleanses its database
to remove the following filings:
 Suits andJudgments that have been inactive for 10 or more
years
 Liens that have been inactive for 11 or more years of
inactivity.”
 Hence certain types of information, such as lawsuits,
judgments and liens, may be reported for a lot longer
than 24 months
www.creditsuite.com/EIN
Dun & Bradstreet

24. Experian
 On its website, Experian says:
 “Dating data ensures that the information presented in a report is
current enough to create an accurate picture of financial health.
 Trade data: 36 months
 Bankruptcies: nine years and nine months
 Judgments: six years and nine months
 Tax liens: six years and nine months
 UniformCommercial Code filings: five years
 Collections: six years and nine months
 Bank, government and leasing data: 36
months”
www.creditsuite.com/EIN

25. Equifax
 Per Equifax, for commercial credit report information about
trade lines, that will be reported for up to 24 months,
whether negative or not
 Equifax says it does not report collection data from third
parties
 However, an account could list that it is ‘in collection’ status
 In addition, Equifax states that information can impact a
business credit score for up to five years
www.creditsuite.com/EIN

26. #5 –Collateral
For a lot of business lending,
collateral is a must
Does your business have
collateral?
Consider the lender’s perspective:
they need to know you can pay
back on time
And if you can’t, then they want
something of value from you
www.creditsuite.com/EIN

27.  This is any property owned by the borrower
which can be pledged for security
 If the property has been previously pledged
against another loan, then lenders would
probably not consider it available to be pledged
again until the previous loan has been paid off
www.creditsuite.com/EIN
#5 –Collateral

28. Collateral can take several
forms:
 Equipment owned by the
business
 Accounts receivable
 Real estate
 Inventory
www.creditsuite.com/EIN
#5 –Collateral

29. Collateral can also be:
 Stocks or bonds owned by
the borrower
 A 401(k) account or IRA
 Book of business if the
business is insurance
(although not State Farm as
they don’t own their books of
business)
www.creditsuite.com/EIN
#5 –Collateral

30. Bonus #6 –Cash Flow
How much money is coming into your business?
And how much is going out?
Can you show you have new business coming in?
www.creditsuite.com/EIN

31. What aCreditor Looks
for on a Balance Sheet
 Current Ratio – by comparing the ratio between current
assets and current liabilities, you determine the liquidity of
the business or its ability to meet short-term obligations
Current assets will usually be converted to cash within
one year and include cash and securities as well as
inventory and receivables
Current liabilities are obligations payable within one
year
 Banks generally want at least a 2-1 quick ratio or twice
as many current assets as current liabilities, but
acceptable ratios can vary
www.creditsuite.com/EIN

32. Quick Ratio – Inventory is part of the value of
current assets for a business, but it can be more
difficult to turn quickly
The quick ratio is similar to the current ratio, but it
removes inventory from the asset equation and
just considers cash, marketable securities and
accounts receivable
www.creditsuite.com/EIN
What aCreditor Looks
for on a Balance Sheet

33.  Debt to Equity Ratio –This compares liabilities with the owner's
total equity
 It shows how much of the company is financed by debt versus the
amount financed by equity
 Trends over time are valuable for analysis
 If the ratio is increasing, the business could be at risk from taking on
too much debt
 This is a good indicator of the solvency of the business or its ability
to continue operations long term
www.creditsuite.com/EIN
What aCreditor Looks
for on a Balance Sheet

34.  ReceivablesTurnover –This is the total amount of receivables
divided by the total amount of collections for a specific time
 If a business collects $1,000 in one week and has total
receivables of $10,000, this business has a ten-week turnover
of receivables
 If the receivables turnover is increasing, the business may
have a problem collecting its accounts
www.creditsuite.com/EIN
What aCreditor Looks
for on a Balance Sheet

35.  Interest Coverage Ratio –This shows how well the
business may cover its future loan payments
 Divide the total operating cash flow (earnings before taxes
and interest) by the total amount of interest paid on
business loans
 A ratio of over 3 to 1 indicates the company should be able
to make future payments
 If the ratio drops under this level, the business could have
too much debt in relationship to its income
www.creditsuite.com/EIN
What aCreditor Looks
for on a Balance Sheet

36. ImprovingYour Business’sCreditworthiness
The most effective way to raise business credit
scores is to …
… pay on time …
… and in full, every time
This matters more than anything else!
www.creditsuite.com/EIN

37. Developing a good repayment history is crucial
Start with small starter vendors
These are trade lines which often provide Net 30
terms
You’re less likely to be turned down
They often don’t pull your credit reports at all
www.creditsuite.com/EIN
ImprovingYour Business’sCreditworthiness

38.  Continuing to develop a good
repayment history means, after getting
5 – 8 trade lines, moving onto revolving
store credit
 As before, pay on time and in full
 With 10 or more store accounts, move
onto fleet credit
 This is credit to maintain, fuel, and
repair vehicles
 Once again – pay your bills on time!
www.creditsuite.com/EIN
ImprovingYour Business’sCreditworthiness

39. After getting 14 or more lines reporting, move
onto cash credit
Your limits tend to be higher
These are cards accepted in more places
These are vendors more likely to have what you
need
You guessed it – pay your bills on time!
www.creditsuite.com/EIN
ImprovingYour Business’sCreditworthiness

40. About the only thing you can do about the length
of your credit history is to be patient and allow
time to elapse
In the meantime, as you build credit via trade lines
and more, the time will pass …
… and you’ll have more payment experiences too
www.creditsuite.com/EIN
ImprovingYour Business’sCreditworthiness

41. You can prevent some derogatory entries by
being responsible with credit
Businesses which pay on time and in full don’t go
into collections
And they are a lot less likely to be sued – at least
for nonpayment of their bills
After a year, try contacting the credit reporting
agencies and see if you can get a derogatory
item removed
You’ll never know unless you ask
www.creditsuite.com/EIN
ImprovingYour Business’sCreditworthiness

42. Be creative when coming up with collateral
An investor might want to help you out in
exchange for a piece of your business
Your company’s accounts receivable can be tapped
So can your equipment and inventory
www.creditsuite.com/EIN
ImprovingYour Business’sCreditworthiness

43.  You can’t always predict or improve your cash flow
 But you can ‘fire’ clients which don’t pay you on time
 Or you can give your uncollected invoices over to a factoring
company
 Factoring companies, for a piece of your invoice, will pay you the
majority of your invoice and then collect from your debtor the full
face amount
 This helps to normalize your cash flow
www.creditsuite.com/EIN
ImprovingYour Business’sCreditworthiness

44. Recap for 5Critical factors that determine
your business creditworthiness
Business credit accounts for a business’s ability to
pay back its debts, not the owner’s
It is not subject to the Fair Credit Reporting Act
Creditors consider your business credit scores …
… and payment history
www.creditsuite.com/EIN

45. Creditors also consider the length of your
credit history
… any derogatory items on your report
… what kind of collateral you’ve got
… and your business’s cash flow
www.creditsuite.com/EIN
Recap for 5Critical factors that determine
your business creditworthiness

46. Creditors check balance sheets to determine
business creditworthiness
They investigate:
 Current Ratio
 Quick Ratio
 Debt to Equity Ratio
 ReceivablesTurnover and
 Interest Coverage Ratio
www.creditsuite.com/EIN
Recap for 5Critical factors that determine
your business creditworthiness

47.  Work to improve your creditworthiness
 Paying your bills on time and building business
credit the right way willALWAYS help
 Try to stay out of derogatory hot water
 Be creative in coming up with collateral
 Get your company into a good cash flow rhythm
www.creditsuite.com/EIN
Recap for 5Critical factors that determine
your business creditworthiness

48. www.creditsuite.com/EIN
5 Critical Factors that
Determine your
Business Creditworthiness
Contact Us for More Information
877-600-2487
info@creditsuite.com