Why Check Your Business Credit Score For Small Business Loan?

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Your business credit score plays a significant role in whether you get approved for a small business loan. It also impacts the amount of money a lender may grant and the terms and conditions of the loan. For example, if you have a high small business credit score, you are likely to get more favorable terms and lower interest rates.

If you are thinking about getting a small business loan, you are not alone. According to the Federal Reserve Bank of New York, 43% of small businesses nationwide apply for new credit annually. Getting a small business loan can be challenging. In June 2021, for example, small business loan approval rates at big banks were less than 19%. While approval rates at smaller banks are higher, about half of those applying for credit at small banks or credit unions are denied.

Before applying for a loan, check your small business credit score to see how the business credit reporting agencies evaluate your business. Since you want to present your small business to lenders in the most favorable light, checking your business credit score helps you identify any problems areas that you may be able to resolve before submitting your application.

Four Reasons To Check Your Small Business Credit Score

Armed with the information found on your business credit score, you will understand how lenders will view your business’ financial health. This is just one of several reasons you should check your business credit report regularly.

1.       Find Out Your Risk Profile

When banks or lenders are underwriting small businesses should get loans, they will first look at your business credit score.

The 2020 Small Business Credit Survey from the Federal Reserve Bank shows that 65% of small businesses are in the low-risk category, so you need to ensure your business credit score puts you on an even playing field.

According to the Federal Reserve Bank, to be considered low risk, you generally want to have a business credit score between 80 and 100. A score between 50 and 79 generally rates you as medium credit risk, while anything lower than 50 is considered high risk.

2.      Fix Any Credit Blemishes

Checking your small business credit score can help identify any blemishes on your credit history. For example, if you have any outstanding debt that is past due, pay that off first, before you apply for a loan, so the credit reports show you are current.

Any accounts that have been sent to collections will remain on your credit report for seven years after the default. While you can request collection agencies to remove account collections from your report with a pay-for-delete letter, the credit reporting bureaus discourage this practice and say it may not impact your business credit score.

3.      Catch Any Mistakes

You should also review your business credit report for accuracy. There can be errors that occur when one of your suppliers or lenders mixes up accounts or the credit bureau mixes up a tradeline with a business with a similar name.

By examining your business credit report, you can catch errors before they cause you problems when applying for a loan.

Other things to check are the number of years you have been in business and the age of your tradelines or credit cards. The longer you are in business and have used credit responsibly, the better your business credit score will be.

If you do find errors, you will need to initiate a dispute with each business credit bureau that shows inaccurate data.

4.      Look For Fraud

Identity theft is big business for criminals. The Insurance Information Institute estimates that losses from identity theft exceeded $712 billion in 2020. Identity theft does not just affect individuals — small businesses are often prime targets of identity theft.

Criminals impersonate businesses to take out loans in your name or apply for lines of credit and rack up bills. One of the first places you may see this activity is on your business credit report. Suspicious activity or multiple requests for credit may hurt your business credit score.

How To Check My Business Credit Score

Checking your business credit score is easy at Command Credit. You can go to CommandCredit.net and select Self-Serve Business Credit Reports. You can choose from different types of business credit reports from the three major business credit reporting agencies:

  • Dun & Bradstreet
  • Equifax
  • Experian

View samples, make your selection, fill out some basic information about your business, and you can pull your business credit report instantly.

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