What is a business credit score?
A business credit score, or SME Credit Score, is a metric developed by our friends at Transunion, which gives a quick snapshot overview of how credit-worthy a business is.
The SME Score is an indicator of how likely a business is to fail. The lower a business’ credit score, the more likely the business will be to fail in the next 12 months.
This also means that the lower a business’ credit score means that credit will be more expensive.
How is it different from a consumer credit score?
A consumer credit report is an indicator for propensity to repay. This shows how likely a person or individual is to repay a loan or finance which is advanced to them. There a hundreds of data points which credit bureau’s draw on to formulate a credit score.
The SME Score which appears in the Transunion Credit report shows the likelihood of a small business failing. In some ways, this is also an indicator of propensity to pay, as obviously a business will be unable to repay its creditors if it is no longer in operation.
In the Transunion report, you will also see a history of the SME Score, so you can see whether your (or another) business is trending in the right direction, and use that as a guide for making your decision.
Why would I want a business credit report?
here are two use cases for a business credit report:
- You want to check on your own business, or
- You want to do a check on another business that you are interested in finding more information about.
Piece of Mind
If you are wanting to check on your own business, getting a business credit report gives you piece of mind that your businesses details are fully up-to-date and the information which is in the public domain is correct.
This means when you are vetted by credit suppliers or any business partners, the information appears correctly and matches with the information you have provided them.
Included in your credit report is an SME Credit Score which gives you an indication of how the credit bureau’s view your company’s likelihood to survive. This is a factor that lenders will look at when making their decision on whether to extend you credit, and how expensive that credit is.
The lower your SME score, the more risky you appear to lenders, and so your cost of credit may be increased.
Staying informed on your business credit score means you are able to take steps to improve it, and therefore put your business in a better financial standing for when you want to access a line of credit.
Check Supplier Information
For the second case above when you want to do a check on another business, a credit report gives you all the information you need to check whether the business is legitimate or not.
Using the information listed below, you are able to check the details they have provided with you against their credit report.
For example, a mismatch in banking details may be a warning signal that there is something fraudulent happening and you should proceed with caution.
Check Propensity to Pay
One of the biggest problems when operating in the small business world is the lack of transparency between suppliers and vendors with regard to payment history. You simply don’t know if that business is a good payer or not, and you can only rely on your judgement of the business directors to see if you should do business with them.
Because there is payment history included in the business credit report, you can see if a potential partner has missed any payments or whether they have a history of repayment defaults.
This will guide your decision on whether you want to enter into a relationship with them or not.
What is included in a Business Credit Report?
Inside the Transunion Business Credit Report, you can find the following information:
Full business registration details:
- Directors Names
- Directors ID Numbers
- Business Registration Number
- Business Name
- Business Address
Civil court records
Any default information on payments missed (are they a good payer?)
- Including payment history, and
- Creditors with missed payments, and
- Details of resolution (did they eventually pay?)
Confirmed company banking details
Property and bond information for that business
Enquiry history on the business for the last 3 years
This shows who has been enquiring about the businesses credit status and gives an indicator as to how often the business applies for financial services products, or has had it’s profile viewed by other parties.
This shows any 3rd party input on the business including comments on individuals and what it was like to do business with this company.
How do I improve my Business Credit Score?
As with a consumer credit score, improving your business credit score takes time. This is because information that gets reported to bureau’s is slightly delayed, and so changes in your information sometimes take more than a month to reflect. It is only when these changes reflect that your score is updated.
Though the small business credit score is still relatively new, there are ways in which you can ensure your score remains high. Here are some:
- Make sure you don’t miss any payments. Always pay creditors on time, and if you are unable, make sure you communicate with them so that a payment plan can be worked out. Most creditors are understanding if you are clear and transparent in your communication.
- Ensure director’s maintain good account standing. Director’s defaults show up on a business credit report. Ensure that all director’s are paying their accounts on time, and do not have any adverse judgements or collections against their names.
- Keep a good rapport with other businesses. Always make sure you deal in good faith, and pay your invoices on time.
How much does a business credit score cost?
Often people think a business credit score is free.
Unfortunately, they do cost money.
Fortunately, FundingHub has partnered with Transunion to offer Business Credit Reports at a significantly discounted rate. If you buy a report through FundingHub, you will get a 52% discount from the normal rate.
The cost a single business credit report is just R124.00.
Ready to get your business credit report?
You can get one at a significant (more than 50%) discount through FundingHub.