What is your Business Credit Score?
A business credit score (also known as a commercial credit score) is a number that indicates whether a company is in good standing to receive a loan, or become a business customer.
Who determines this score?
The scores are typically calculated by two major Canadian business credit scoring firms, Equifax or TransUnion, and are made available to various lenders for their decision making purposes. Each firm uses a slightly different scoring method, but the scores generally range from 0 to 100.
How is your Business Credit Score calculated?
The scores are based on a company’s credit obligations and repayment histories with lenders and suppliers. Typically, the following indicators are used to measure creditworthiness:
What you currently owe to other lenders and suppliers;
How much credit you have used up (credit utilization);
Whether your payments are made on time;
How old your company is and what industry it’s in;
What impacts the components of the score?
Some of the items taken into consideration are:
any legal filings such as tax liens, judgments, or bankruptcies;
how long the company has operated;
the business type and size; and
repayment performance relative to that of similar companies/competitors.
What other factors are considered?
Lenders looking to decide on granting a loan, or suppliers looking to grant favourable credit terms on inventory purchases, would also look at the business’ revenue, profits, assets and liabilities, and the collateral value of the equipment/inventory being purchased with the loan proceeds.
Also check out our blog post on Why are Balance Sheets and Profit & Loss (Income) Statements so important?
If the business is relatively new, or is still fairly small, it’s likely that the personal and business finances of small business owners would be closely intertwined. In such cases, the lender might also check both the business’ and owner’s credit scores.
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In general, a business will have a good credit score if it pays its bills on time, stays out of legal trouble, and doesn’t incur too much debt. At Arria CPA, we use secure cloud-based technologies to help organize your bill payments, and also provide you with a real-time dashboard to quickly oversee both top-line revenues and expenses breakdown, so that you can always monitor the various components of your Business Credit Score. Contact us for a free, no-obligation consultation to learn more about how we can help you understand and improve your business credit score.
Disclaimer: Please note that this is only a brief summary and is based on current accounting regulations and tax law interpretations. Accounting regulations and tax laws are subject to continual review and change, so should the facts provided to us be inaccurate or incomplete, or should the law or its interpretation change, our summary may be inappropriate for your uses. This article is written for educational purposes only, and as such, we recommend you consult a professional before making an accounting or tax decision. If you have any concerns, or would like further consultation regarding this matter, please contact us.
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