Learn How Banks Assess Your Business Credit

6 min read

Executive Summary

Educating yourself on how banks assess your business credit will help you secure loans and gain a competitive advantage. 

Disclaimer: Our first priority is giving you the best financial advice for your business. Tillful may receive compensation from our partners, but that doesn’t affect our editors’ opinions or recommendations in the content on our website. Editorial note

Educating yourself on how banks assess your business credit will help you secure loans and gain a competitive advantage. 

Assessing your business credit is done differently than assessing your personal credit. Business credit is not only measured on a separate scale that ranges from 0 to 100 (personal credit scores range from 300 to 850), it’s also worth knowing that your business credit score is available for public access. 

A decent business score of more than 80 will also make it easier to secure opportunities for better funding. It’s important to understand that banks often outsource business credit assessments to external bureaus. The most common bureaus used in the U.S. are Dun & Bradstreet, Experian, and Equifax. Each bureau employs a slightly different set of metrics for assessing your business credit score, and they will seldom disclose their methodologies to the public. 

Understanding the factors that banks and bureaus use to assess a company’s business credit score will thus help any SME owner gain a competitive advantage. Gaining this knowledge also provides insight into what is usually a black box.

Despite the opacity of the process, you can access your business credit reports on all three of the mentioned platforms.

Top factors in your business credit score:

 

Article images 1

1. Payment History

Do you usually pay your suppliers on time? Are your customers also timely? What does your cash flow look like? Reliable payment history has a significant impact on your company’s credit profile. Avoid delinquent payments at all costs as they are the single most important factor that will bring your business credit score down. That said, remember to check your credit history for accuracy and review the minimum criteria for approval set by a lender

 

Article images 6

2. Age of Credit History

An established family business with a long credit history and a track record of timely payments will score higher than a Series A start-up with only two years of operations under its belt. As banks and bureaus seek reliability as a key indicator, longer credit histories allow them to accurately review a company’s ability to pay back loans. A good rule of thumb is that banks look for established businesses that have weathered market fluctuations, with two years being a common minimum requirement. 

 

Article images 4

 

3. Debt and Debt Usage

Keep your debt under control and, if possible, don’t max out your credit lines. Timely payments and good debt management practices go a long way. Lenders will request credit reports before issuing loans to any potential business, so make sure your track record is in shape before applying for one.

A business credit report will cover your current Days Beyond Terms of payment (DBT), monthly average DBT, highest DBT over the last six months, and highest DBT in the last five quarters. Ideally, you’ll want to keep your DBT at zero, but doing business is unpredictable and sometimes paying late is unavoidable.

 

Article images 5

 

4. Industry Risk

The lower your industry risk, the easier it will be for you to secure financing. Keep in mind that certain industries and sectors are classified as higher risks than others. Specifically, if your business falls under real estate investing, auto sales, travel, transportation, money lending/collecting, or food and beverage, you will be classified as high-risk. Lower risk sectors include pharmaceuticals, healthcare, repairs, sin industries like micro-breweries, and other sectors with demands that aren’t tied to whether or not a market is bullish.

 

Article images 3

5. Company Size

The number of employees and annual revenue of your company will give bureaus an idea about the size of your business and the potential size of your loan. If you are selling a product or providing a service, this translates to your gross sales volume and the number of active accounts under your name, respectively.

 

Article images 2

6. Length of Time on File

One of the most important factors that will make it easier for you to secure financing is the length of time a given credit bureau has had you on file. Because different banks use different bureaus with different methods of credit risk assessment, a reliable history with a given bureau like Experian or Equifax will contribute to building a high business credit score.

All of these tips should help you uncover the arcane procedures that banks and bureaus use to assess your business credit score. Now that you are familiar with the rules of the game, the hard part is knowing how to play it to your advantage. Building and maintaining a strong business credit score is a constant work-in-progress that depends on good debt management practices, patience, and a knowledge of where your industry stands on the risk management scale.

A strong business credit score translates to borrowing power, but the benefits stretch beyond eligibility for bank loans. Diligently monitoring your business credit score will help you keep up with potential credit fraud, incorrect information from your vendors or lenders, and changing credit scores. 

Nearly 50% of all companies and 90% of all startups fail within the first two years. As such, keeping abreast of how your firm’s practices influence your business credit score will help you avoid the pitfalls of running a business, while also proving to be a competitive advantage.

 

About the author

Ken So

Written by Ken So

Ken is the Founder and CEO of Flowcast and Tillful. Having spent most of his career before Tillful in tech and investment banking, he covers all things business credit and finance with a twist of insider knowledge.

You may also like

Is your business getting the credit it deserves?

Sign up to take control of your business’s financial health today.

Get Your Free Score

Tillful Advertiser Disclosure

Our first priority is giving you the best financial advice for your business. Tillful may receive compensation from our partners, but that doesn’t affect our editors’ opinions or recommendations in the below content or content throughout our website unless expressly stated. Our partners cannot pay for favorable reviews, and they don’t review, approve or endorse our editorial content.

Tillful may receive compensation from third-party advertisers, but that doesn’t affect our editors’ opinions on the services or products we cover in our content. Our marketing partners don’t review, approve or endorse our editorial content. It’s accurate to the best of our knowledge when posted.

Any personal views and opinions expressed are the author's alone, and do not necessarily reflect the viewpoint of Tillful. Editorial content is not those of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities.

Reviews are not provided or commissioned by the credit card, financing and service companies that appear in this site. Reviews have not been reviewed, approved or otherwise endorsed by the credit card, financing and service companies and it is not their responsibility to ensure all posts and/or questions are answered.

Your business’ success, future and financial well-being is our first priority.

Every time.

We believe everyone should be able to make financial decisions with confidence. And while our site doesn’t feature every company or financial product available on the market, we’re proud that the guidance we offer, the information we provide and the tools we create are objective, independent, straightforward — and free.

So how do we make money? Our partners compensate us. This may influence which products we review and write about (and where those products appear on the site), but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research. Our partners cannot pay us to guarantee favorable reviews of their products or services.

Back to Top

cross