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Business Credit Scores Impact on Business Lending

By David Gass

For many years consumers have been able to track their ability to borrow money and receive credit from banks and other lending institutions through a system that ranked their creditworthiness on a scale known as a personal credit score. Today businesses have that same option. Several major credit information companies, like Experian, Equifax, Business Credit USA and Dun and Bradstreet now have databases on small businesses all over the country and have developed a business credit scoring system which can allow consumers, suppliers, and other companies to rate the credit of small businesses.

The business credit score will help banks and other lending institutions approve or deny credit as well as determining the level of interest to be paid on all new business loans. The higher the business credit score, the lower the interest rate. The lower the business credit score, the harder it will be for that business to get credit, especially at favorable market rates.

Business will have to self-monitor their business credit score just like consumers have to keep a close watch on their personal financial credit score. If there are bad debts or former bankruptcies on their business credit files they will have to take action or run the risk of being turned for future credit requests. Having a good business credit score will be an important factor that will need their personal attention.

Some businesses, banks and other lending institutions have long had their own business credit scoring systems to rank their business customers and to determine the appropriate level of interest rate to charge them for business loans. In the recent years more and more of these credit grantors have started buying business credit reports from the business credit bureaus.

The business credit bureaus will continue to collect additional information on businesses including their payment history, and other data that they feel is useful to determining a business�s financial health. They bundle these up as company reports and sell them to banks and lending institutions so that they can evaluate business credit requests. Combined with the business credit score they are now much more confident in profiling not only a business�s past credit record but in predicting their future patterns and trends.

About the Author:

David Gass is President of Business Credit Services, Inc. His company publishes a weekly e-newsletter on Starting and Growing a Small Business at http://www.smallbusinessconsulting.com

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