After the 2008 financial crisis, most banks imposed more stringent restrictions on lending to businesses. Likewise, many companies have incorporated credit checks into their standard operating procedures to verify both suppliers and customers. For business owners, understanding how to handle or survive a business credit check can be the key to good financing and a quality working relationship.
In several ways, restrictive business loans have forced many businesses to revert to more traditional methods of assessing business risk. In addition to routine credit checks, companies often rely on personal and professional relationships to determine their creditworthiness. Connections made at social, religious or professional networking events can quickly evolve into opportunities for business partnerships. Corporate credit profiles can justify the knee-jerk reactions of finance officers and purchasing managers, or they can challenge an otherwise flourishing professional relationship.
Build your own strong credit report
Business owners should regularly monitor their business credit reports to avoid errors and prevent fraud, according to officials at Experian, one of the nation’s largest credit reporting agencies. Small business owners must work hard to separate their personal credit from their business credit, so that imperfections in one report do not appear on another. Dun & Bradstreet, a leading business credit reporting agency, uses its proprietary DUNS number to track businesses. Few businesses without a DUNS number on file can expect to obtain substantial business credit.
Performing business credit checks
In addition to maintaining a company’s credit profile, a business owner should also be familiar with the steps required to review the credit profiles of suppliers and potential customers. Credit bureaus offer a variety of subscription programs that allow real-time access to a company’s financial history. While no credit check for a business can definitively predict a prospect’s viability, a solid background can help managers make more solid decisions about long-term funding or production plans. Likewise, reviewing a supplier’s credit report can help avoid supply chain issues caused by suppliers failing to pay on their own suppliers’ invoices.
Running consumer credit checks
As American consumers have become more familiar with the content of their own credit reports, businesses have found a growing number of reasons to seek access to personal credit histories. Some employers use credit checks to validate the identity and potential reliability of potential employees. Other businesses use personal credit reports to verify the identity of customers placing large orders, thereby preventing fraud or abuse. Many of the same companies that grant access to corporate credit profiles offer subscriptions to view consumers’ financial information. Businesses that rely more on credit checks, such as rental property owners and financial agencies, often pass credit check fees on to consumers in the form of application fees.
Even though U.S. businesses now enjoy unprecedented access to corporate and consumer credit reports, business owners still need to take precautions to avoid fraud while protecting privacy. Credit monitoring services can alert company executives to any request for credit checks, as well as any changes to credit reports by third parties. Taking care to promptly report inaccuracies, duplicate entries, or omissions can help businesses get the most out of a good credit report.
Biography of the writer
Joe Taylor Jr. manages sales for a Fortune 500 company and writes on finance, culture, and design. He has worked as a reporter and producer since 1989. His work has appeared on CNBC, CNN and NPR, where Elvis Costello previously taught him how to brew the perfect tea. He holds a Bachelor of Science degree from Ithaca College.