For most small businesses the two companies that will have the greatest impact and issue “credit scores” are Dun & Bradstreet (D&B) and Experian. The D&B rating is compiled in their Paydex Score and Experian provides a business Credit Ranking Score.
In my experience, establishing a business line of credit for a corporation is based on a combination of your Experian or D&B score, years in business, revenue, personal FICO scores for at least 80% of the owners, and the credit utilization on owners personal report(s).
For example, Washington Mutual recently issued a revolving line of credit (under $100,000) based on the following criteria:
- credit line less than 15% of annual revenue
- 2.5 years of operations preferred
- an Experian score of 80 or higher
- personal FICO scores of 720+
- personal credit utilization of 25% or less
From this they calculated an internal risk rating on a 200 point scale. Based on your score you would fall in one of several tiers (all with a different margin rate). The closer to 200 the lower your margin (i.e. 1% instead of 2%). If you received a credit line you would get a variable interest rate of Prime + your margin.
For certain industries that they consider high risk like real estate they have higher standards and lower credit lines (10% of revenue instead of 15%).
When applying for a business line of credit you should shop around and find out what the underwriting guidelines are for each bank. Also, the type of documentation that you need will factor into how easy it will be to process your application. Every bank is different and some banks are more aggressive in order to obtain the rest of your business. So be prepared to move your checking accounts as well if you don’t have an existing relationship with the bank.
The fact is that until you reach a level of success where you have millions of dollars in annual revenue, the owner’s personal FICO scores and credit report are often more important than D&B or Experian Business. But as you grow, the importance of these scores will increase.
