The importance of business credit continues to increase as more and more banks are using business credit scores to determine the creditworthiness of business owners. For the last 30+ years, the Fair Isaac Corporation has been developing a business credit scoring model called the “Liquid Credit Small Business Credit Scores.” This model is currently being used to determine the creditworthiness of business owners applying for SBA loans under $350,000.
The SBA loan program has dispersed over $30 billion in loans each year to small business owners over the last 3 years. That amount alone should serve as an example of how many applicants will be impacted by the new scoring model. If you plan on applying for an SBA loan under $350,000, it would be wise to have a clear understanding of how to build business credit and how it will affect your ability to get approved.
Understanding How to Build Business Credit – Try Vendor Trade Lines
Your business credit is just as important as your personal credit when it comes to being eligible for an SBA loan under $350,000. This is because with the new scoring model, your personal and business credit scores will be combined to come up with your “Liquid Credit Small Business Credit Score.” You will need a score of at least 140 to qualify for SBA loans under $350,000. Since the SBA is using a scoring model that combines your business credit with your personal to come up with a cumulative score, it is imperative that you fully understand how to build business credit.
In my experience, the best way to start building business credit is to establish vendor trade lines that report to Dun & Bradstreet and obtain unsecured business lines of credit that report to Experian Business. Vendor trade lines are lines of credit issued to business owners by companies like Best Buy, Office Depot and Quill. These companies issue trade lines to business owners who may need to purchase office supplies and equipment for their business.
Verify that Vendors Report Your Usage
The vendor providing you with the trade line typically reports your trade line usage to the business credit bureau, Dun & Bradstreet. However, it’s always important to ask a vendor if they will report your trade line usage to at least one of the business credit bureaus (FYI: there are three business credit bureaus– Experian Business, Equifax Commercial and Dun & Bradstreet). Vendors who do not report your trade line usage to any of the business credit bureaus will not help you build a business credit history (this is why it’s important to ask the vendor).
Unsecured Business Lines of Credit May Help You Build Business Credit
Unsecured business lines of credit are “cash” lines of credit that can be used anywhere for any business purpose. You are not limited in where you use them since they are not issued by a specific vendor (like Office Depot), rather a bank like Bank of America or Chase. Not many lenders report your unsecured business line of credit usage to the business credit bureaus however there are some that do.
The banks that do typically report unsecured business line of credit usage, use Experian Business only. Therefore if you plan on applying for an unsecured business line of credit, you should definitely ask the lender if your usage will be reported to the business credit bureaus. Lenders like Capital One typically report your unsecured business line of credit usage to your personal credit history (not all lenders do this), so asking beforehand is critical if you want to build a business credit history and score.
Start Building Business Credit Today – LenCred Can Help!
If you are convinced that building business credit can be beneficial to you in your ability to secure small business financing, I suggest you contact the Funding Advisors at LenCred to learn more. Not only can they help you obtain unsecured business lines of credit, they can also help you obtain vendor trade lines, both critical components in building a credit history that will help you qualify for SBA loans under $350,000.