How to Check Your Business's Credit Score & Why It's Important

Published July 19, 2019 by WC Team

Consider your business’s credit score as something similar to a report card. It shows how well your company has done at paying its debts on time and is therefore quite important to insurance providers, lenders and contractors alike. As a motivated entrepreneur who cares about your future prospects, it makes sense to learn as much as you can about your score and how to obtain it.

Business Credit Score 101

There are three major bureaus that calculate business credit scores: Experian, Equifax and Dun & Bradstreet. Each of these has its own proprietary algorithm for coming up with a unique credit report. In order to obtain these figures, the bureaus use data from your business accounts but stay away from your personal records. The information in business credit reports is publicly available to you and anyone else who requests it at a fee determined individually by each bureau.

Why Is Your Business Credit Score Important?

There are several reasons why establishing good business credit is a very good idea. These include:

  • Getting on the right foot with lenders. If you demonstrate robust credit, lenders will be more likely to determine that you are someone who will abide by the terms of a business loan or line of credit./li>
  • Lowering insurance rates. Purchasing business insurance is a must, and its costs can rise as your business grows. However, good business credit might help to keep those costs more manageable.
  • Separating your business from your personal records. In the beginning of your undertaking, you most likely will need to blur the lines between your own and your company’s credit. However, burnishing your store’s credit can help to begin the necessary process of separating its records from your own. In so doing, you and your family will gain an extra layer of protection and will not be left holding the bag should the worst happen with your commercial fortunes.
  • As your credit score rises, your company’s borrowing power is amplified. This makes it possible for you to get higher amounts of capital should you need it.

How Business Credit Scores Are Determined

As stated above, each of the credit bureaus independently calculates their own credit score for your business. However, they all request relevant information about your company from trade associations, other business credit card issuers, banks and other lenders. The findings are generally verified via third-party companies.

Dun & Bradstreet

This bureau calculates your risk by computing a Paydex score ranging from 0 to 100 based on payment data about your business. Your Dun & Bradstreet report will contain this as well as a Commercial Credit Score and a Financial Stress Score.

Equifax

Equifax computes three variables: your payment index, credit risk score and the business failure score. These assessments use various data to estimate how reliable you have been in making payments, the likelihood that your business will be delinquent on payments in the next few months and the chances that it will close down within the next year.

Experian

Experian’s CreditScore report furnishes a comprehensive look at information such as your account transactions, business credit score and public records. Because it looks at more than just your payment history, you can obtain a more far-flung synopsis of your company’s credit-worthiness.

If you want to obtain reports from these or other commercial bureaus, contact them directly, and expect to pay a fee.

Understanding the information on your company’s credit scores and reports is crucial. These compendia of data are the resources that lenders, insurers and vendors use to assess your integrity and stability. Therefore, it is in your best interest to obtain your most recent bureau reports today.

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19 Comments

Giovanni Jacobs

Sep 7, 2020 12:28 PM

Merchant Cash Advance are notorious for eggregious fees. How this isn't monitored and enforced by state and federal regulators I still don't know. Think for a moment if there weren't baseline protections in place for consumer mortgages? How crazy would that be, right? Lenders could not only charge whatever rate they wanted, but they could also manipulate what fees are charged to what person. In this day and age, where the majority of America is in favor of equal rights and protections before the law, what's stopping business lenders from predatory fees and rates.

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Dudley Stokes

Sep 7, 2020 12:28 PM

You're 100% right, Gio. The fact of the matter is that while we business owners don't want to be regulated, we do want and should require federal and state watchdogs to protect our interests. This goes back to the early 1900s where monopolies ruled and crushed small business. I have a sneaking suspicsion that four more years of Trump will mean little Federal regulation, and instead more rollbacks. On the other hand, if Biden is elected, I see more tangible enforcement and regulation rolling downhill from the Federal government setting a baseline of rules and regulations. States will definitely catch on and you'll most likey see Blue states have a more weaponized version of the same type of legislation. What a tirade! But to answer your question, more enforcement across the board might help or it even might hurt. I'm just thinking back to the Great Recession. The Federal government set a whole bunch of rules that but banks in precarious positions, for example, how much cash they had to have on-hand, etc. On the one hand it helped protect individual and institutional investors that bought those bank equities, funds, ETFs and bonds. However, at the same time, the restrictive rules also limited banks interest in making loans, specifically consumer mortgages. So, who was left out of the latest boom since Trump took office? The gap widened between rich and poor and this disporportionately affected minorities looking to borrow. In that same vein, I can definitely see this shit rolling downhill. On the one hand, we as business owners need to be able to access small business loans, like merchant cash advance and equipment financing. If they were to be more regulated than they already are today, what would that mean to minority business owners who in general face more barries to entry due to poorer credit? Again, there's going to be blowback and through well-placed intentions, there will be unforseen consequences. I'm not trying to soapbox, but the reality is that this is what happens when regulators push their agendas forward witthout fully understanding all perspectives.

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Alejandro Davis

Sep 7, 2020 12:28 PM

IMO, the small business loan fees are a ripoff. Frankly, the fees you pay on an equipment lease or equipment finance agreement are basically up to the lender. I once did a equipment lease through who I would later learn was an equipment lease broker. Boy was that an eye-opening experience. The whole time I thought I was working with an actual lender, but come to find out that this guy was actually brokering my equipent lease. Boy did I get taken to the cleaners. Initially, he made me sign a lease committment agreement. It detailed what the approval would look like and had the equipment lease cost or equipment cost, the equipment lease monthly payment and the equipment lease residual all spelled out. The one thing that was missing was the equipment lease interest rate. Belive it or not, there wasn't even a equipment lease factor rate to be found anywhere on the form itsel. I had to sign the equipment lease commmittment agrement form and send it back along with a scanned copy of a deposit check equivalent to the first two equipment lease payments plus a processing fees or adminstratitve fee. Hogwash! Come to find out when the equipment lease was put to bed, those initial two payments and administrative fee weren't even applied to anything on the actual equipment lease. What a bunch of BS! Make sure you're working with an actual lender and not a broker.But to answer your question, more enforcement across the board might help or it even might hurt. I'm just thinking back to the Great Recession. The Federal government set a whole bunch of rules that but banks in precarious positions, for example, how much cash they had to have on-hand, etc. On the one hand it helped protect individual and institutional investors that bought those bank equities, funds, ETFs and bonds. However, at the same time, the restrictive rules also limited banks interest in making loans, specifically consumer mortgages. So, who was left out of the latest boom since Trump took office? The gap widened between rich and poor and this disporportionately affected minorities looking to borrow. In that same vein, I can definitely see this shit rolling downhill. On the one hand, we as business owners need to be able to access small business loans, like merchant cash advance and equipment financing. If they were to be more regulated than they already are today, what would that mean to minority business owners who in general face more barries to entry due to poorer credit? Again, there's going to be blowback and through well-placed intentions, there will be unforseen consequences. I'm not trying to soapbox, but the reality is that this is what happens when regulators push their agendas forward witthout fully understanding all perspectives.

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Ramiro Brooks

Sep 7, 2020 12:28 PM

I did a equipment lease for my barber shop. I'm really not sure about the fees I paid. As a consumer, I just figured that I had no choice but to pay them.

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Delbert Gallagher

Sep 7, 2020 12:28 PM

I've done my equipment financing through US Bank over the years. I'm in the Twin Cities and frankly US Bank is dominant out here. Working with US Bank is always simple because all of my equipment leases over the year have been under $50K. I really do think that's the magic number. I want to do all of my banking with my RM at the branch level. Frankly, I've know my business banker for over 15 years and he's not going anywhere. Even if he did leave, I'd imagine he'd just move branches and in that case, I'd probably follow him too. I'm old-fashioned that way. I prefer to do business face-to-face. Over the last 15 years that I've been with US Bank, I've probably done a dozen or so equipment leases; some we're technically equipment finance agreements or equipment finance loans because there wasn't a residual at the end of the term. Kinda like a straight up loan. I've done equipment leases on a variety of asset types, from copy machines, to box trucks, to forklifts for the warehouse, even a racking system for the warehouse which I was actually suprised that someone would finanace. I don't think I ended up paying any eggregious fees like some of the guys are detailing here. I think that's part of the benefit of working directly with the lender.

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Lavern Pittman

Sep 7, 2020 12:28 PM

Since no one has talked about merchant cash advance fees, I guess I'm the first. I worked with a company in Orange County, California. They charged me something similar to what Teddy Bowers had talked about. They made me sign some sort of payment outline for my working capital small business loan. It detailed the amount they were advancing me and what the daily payments were. Nowhere on the document did it make mention of an actual working capital interest rate. Funny, right? Well, I signed it and faxed with it a check for a week's worth of working capital small business loan payments! Just like what Teddy said, these payments were never applied to my actual working capital loan. It was just a fee or something. I'm not actually sure what the hell it went to. In the end, I thought the most interesting part was that the lender just kept debiting my business checking account. It would seem that this would go on indefinitely...but my CPA ended up catching them red handed. And when we caught them with their hand in the cookie jar, what do. ya think their excuse was? Bank error! Like freaking Monopoly only I'm the loser. It took about 3 months for us to catch up with their scam. They ulimtately refunded every red cent though. Lesson is, watch your bank account as closely as you watch your wallet. These merchant cash advance lenders are dubious scam artists.

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Shawn Proctor

Sep 7, 2020 12:28 PM

I had a similar experience with a company that I did a merchant cash advance through. I didn't have to pay any working capital loan payments ahead of time, but I did get perma-billed. I think they took another month of payments or something to that effect. Maybe 20 or 21 payments. Not chump change to say the very least. About $10K worth of payments. My accountant only reviews my financials every quarter, so it was only when I he had time to review my quickbooks file and my bank ledger did he realize that they were debiting me without my permission.

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Eldon Reeves

Sep 7, 2020 12:28 PM

I financed my equipment purchases over the years and never really noticed any outlandish equipment loan fees. I pulled out some old copies that I had of my equipment lease contracts and here's what I found: equipment lease admin fee: $150, equipment lease inspection fee: $150, equipment lease title search fee: $200, and wire fee to my vendor $50.

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Dominick Walsh

Sep 7, 2020 12:28 PM

Equipment leases are notorious for fees. That's how they get you. I read another article on this site about pre-payment penalities (https://working-capital.com/articles/prepayment-penalties-on-business-loans) and the article hits the nail on the head. That's why these companies exist. I mean they truly have a nice little niche carved out for themselves. I work for Wells Fargo and can tell you from my perspective, they finance what we won't. For one, we don't finance high mileage commercial vehicles; not that we would do that on the consumer side either. We don't! We also have certain restrictions on certain brand name trucks we don't finance. For example, we won't finance any commercial truck with a Maxxforce engine. Those engines are notorious for problems, so naturally we've learned our lesson and won't finance them. To the extent that these equipment leasing companies have carved out a niche, they've done so permissably. The fact of the matter is that WF themselves won't finance certain asset types or assets of a certain age as I've mentioned. The reason that I said that these equipment financing and leasing companies have built their businesses permissably is because in a lot of cases, we're (Wells) a lender to them. So, while on the retail side, we'll shun equipment leasing customers for the aforementioned reasons, we'll at the very same time provide a capital structure to the equipment lessor that allows them to buy these transactions. Ironic isn't it?

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Jermaine Bridges

Sep 7, 2020 12:28 PM

Dominick, no offense but that's a crock of shit. Does anyone else find this deceptive? Reminds me of they heyday of consumer mortgages. BofA won't buy my mortgage because my FICO score is under 650, but some cockamamie mortgage broker will fund it, sell it to Countrywide which ultimately is bought by Bank of America! I've never done an equipment lease through a bank. I didn't even know that they offer that. I've always financed through the vendor that's selling the equipment. I guess he's not really the lender, but he's facilitating the loan for us. Not sure if the fees we paid on our equipment leases were fair or exorbitant TBH. We just paid them. But that whole sham about Wells is pretty freaking hilarious. Jokes on us I guess.

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Bill Shea

Sep 7, 2020 12:28 PM

Equipment leasing will always have higher rates and a higher fee schedule when compared to a traditional loan. That's basic Accounting 101. It's higher risk business for one, but the other reason that the rates and fees on equipment leasing is more costly when compared to banks is that the lender themselves has to acquire financing. So, unlike banks that borrow at basically zero (Fed Funds Rate), or make longer-term loans based on deposit accounts that they basically pay 1% APY on, these equipment finance lenders have to pay a bank to set up a lending facility and this is costly. Imagine a medium-sized company getting financing from a large national bank. I'm guessing their rate would be 5%-6%. Sound about right? Well, now imagine that the same medium-sized company is actually a commercial lender, an equipment leasing company or for that matter a merchant funder (is that what they're called?? Maybe merchant cash advance lender is what they're actually called). They're not borrowing the money to finance their operation to faciliate growth, buy a building, or a piece of equipment. They're looking to borrow money to lend. See the issue? It's all about risk. This is amazingly risky I'd imagine. I've seen too many businesses during COVID go belly-up. I can't even go to my gym because they've declared BK.

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Peter Woodward

Sep 7, 2020 12:28 PM

Bingo Bango, Bill. That has to be the reason. However, at the very same time, is that our fault? Should we be charged higher fees because the lenders we borrow from can't secure proper financing? Would more regulation in the commercial finance space help with this, or hurt it? I've read some of the comments above and I can't seem to formulate an opinion on the mattter because it's like circular logic. On the one hand, federal and state regulation in the equipment leasing space may help or it might hurt. Same to be said about more regulation when it comes to merchant cash advance or working capital small business loans.

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Isaias Gilbert

Sep 7, 2020 12:28 PM

I've not had the same experience that you guys seem to have had. I've financed two times with Marlin Finance and both were easy. I didn't notice I was charged any fees either. Both were equipment loans.

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Roosevelt Navarro

Sep 7, 2020 12:28 PM

The rates that merchant cash advance lenders and the rates that equipment lease companies charge are high. Everyone is well aware of that. However, are you aware that the fees you're charged on these contracts are all added to your payment schedule and that is how the true APR is calculated. On an equipment lease agreement, we're talking rates in excess of 50% per annum. On merchant cash advance contracts, we're probably talking in the hundreds of percent. Chew on that!

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Gene Valentine

Sep 7, 2020 12:28 PM

Merchant Cash Advance fees are outrageous, but I mean what can you do? I've complained to the Nebraska Attorney General and guess what? No respone.

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Salvador Booth

Sep 7, 2020 12:28 PM

Equipement leases and merchant cash advance loans fill a void in the commercial lending space. Truth be told, banks don't want to offer these types of financing to small business owners. They're simply not equipped to handle these types of transactions, nor do they have the processing, back-end or system architecture to faciliate these types of small business loan structures.

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Josef Herrera

Sep 7, 2020 12:28 PM

I've never financed equipment, but I've done plenty of merchant cash advance loans in my time. I own a small chain of restaurants in Houston. Generally, I need these small business loans to keep up with bills. My accountant says that these merchant cash advance working capital loans have now become a part of my capital structure. I find that kind of funny. The way it works is that I have a working capital loan for each of my restaurants since each location has it's own fed tax ID and sometimes have a different ownership structure. The fees that I've seen are as follows: merchant cash advance origination fee: 3% of the total working capital loan, $150 working capital missed payment fee/working capital bounced payment fee. I prefer the merchant cash advance lender to wire me the funds each time, so there's $150 fee for that too. Other than that, I can't seem to remember any other fees for taking out a working capital loan.

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Nestor Delacruz

Sep 7, 2020 12:28 PM

Equipment Leases are always going to have fees that are greater than traditional loans. I did a term loan through my bank and only paid a $150 processing fee, which included the cost to pull my personal credit and my business credit. I was approved for the loan in two weeks. I think it was $150K or so. It had a fixed term, so I had to pay it back in 24 months. Everything was so simple since I already was their customer. This was back in 2005ish?

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Herb Whitaker

Sep 7, 2020 12:28 PM

I've financed my trailers through a third-party equipment leasing company. Yeah, I mean the fees are expensive, but how are people like me supposed to find the financing when I'm literally on the road for 300 days/year. I run a Cascadia 122SD primarily and I haul from mines across the midwest and south. I'm not really what you would call and long-haul driver, since I rarely drive across country. I'm a speciality hauler and have a nice niche for myself. I have three to four trucks on the road at any given time and my wife is also one of my drivers. I don't sit at a comfy desk, so if I'm looking to equipment financing, it's because I've stopped at a truck or trailer dealer and they're talking me about a piece that just came in, generally a trade-in. I take the financing that they provide and it's never the manufacturer's financing since the trucks and trailers that we buy are used. When it comes time to do the equipment leasing paperwork, it's usually done at a truck stop.

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