small business questions

Small Business Credit Awareness FAQs with Jay DesMarteau of TD Bank

Recently, the NFCC had a Twitter Q&A with Jay DesMarteau, Head of Regional Commercial Specialty Segments at TD Bank to discuss small business credit profiles, scores, and basic small business credit awareness. Check out the great information that was shared below.

When does a small business begin to establish credit?

A small business starts a credit profile once they are legally established as a business and begin to make payments and purchases for that business. Simple things, like paying for supplies on time and opening a business checking account, contribute to that credit score.  A business owner’s personal credit score contributes a great deal, as much as 60 percent, to their business score.

How do you find out if your small business has data on a credit report and a credit score?

There are three major business credit bureaus: Dun & Bradstreet, Equifax and Experian. They all have different scales for their scores. Small business owners should also consider smartly using credit – like a business credit card that they can pay off in flusher months. Also, try to make loan and other debt payments fixed so that you can predict your expenses month-to-month. There are also some new credit reports emerging that use alternative inputs, such as eCredable. They aren’t broadly used yet but will work their way into the consumer and business lending landscape!

What are the differences between a personal and business credit score?

As we’ve discussed in a previous #SmallBizMoney chat, small business owners need to know they are related. Personal credit impacts business credit except for very well-established businesses. That means if you skip payments on a mortgage or student loan, your business score can also be negatively affected.

Is it ok to use personal credit cards or loans to fund a small business?

Generally, small business credit cards are tied to the social security number of the small business owner. Make you sure check that when you apply. A loan, unlike a credit card, most likely will be tied to the TIN (tax ID number) of the small business. Most banks will make the small business owner guarantee their business loan, so if they default on their business loan the owner has to make up for it personally. Small Business Administration (SBA) loans generally make the owners and business pledge all collateral, business and personal assets, even the small business owner’s equity in their house.

What are the advantages of keeping business credit and personal credit separate?

The major one is it will keep accounting records most accurate. If all goes well, you will also be able to show the business can pay its debts on its own from its own cash flow.

What is factored into a business credit score?

There are several things that go into a business credit score like length of time in business, payment history, and debt load for the business and the owner.

What is considered a good business credit score?

As I mentioned earlier, there isn’t a standard business credit score scale like with personal credit. Some go to 100 and others go to 300 or higher. What is considered a “good” score will ultimately depend on which credit bureau your lender uses.

Who can request and view my business credit report and score?

The owner of the business and creditors may access your credit report. A creditor can access with your permission. No one can access your credit scores without your permission

How much credit should a small business have available?

The total credit available to a small business should meet its needs and not exceed what they can repay. Banks will have ways to try to prevent over extending credit like debt service coverage calculations. This type of calculation will help them make sure you can pay all your loan payments each month. Loan amounts are restricted on products like lines of credit, banks make sure that it’s at a percentage of your annual sales that is appropriate.

What tips and tricks do you have for improving business credit scores?

First, don’t fear credit. Take control! Another tip is to always pay vendors on time. Get advice early from a banker. Find out if you are credit worthy and if you’d get approved. Start small with a small business credit card, then a small line of credit.

 

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Who is the NFCC?

We are the National Foundation for Credit Counseling (NFCC). Founded in 1951, the NFCC is the nation’s first and largest nonprofit dedicated to improving people’s financial well-being.

NFCC members help millions of consumers like you through community-based offices serving all 50 states and Puerto Rico. Each NFCC member agency has earned our seal by adhering to high standards and ethical practices designed to help you achieve financial stability.

For more on the NFCC, visit www.NFCC.org

THANK YOU TO OUR EXCLUSIVE SUPPORTERS

Thank you to TD Bank, America’s Most Convenient Bank® and The TD Charitable Foundation, the charitable giving arm of TD Bank, for their exclusive support and commitment to NFCC’s small business owner financial coaching and education program.