There are many things to handle when you own a business: Of course, you need to be on top of sales, inventory, and advertising. You also probably have your hands full with everything from shipping to social media marketing to labor issues.
So, when was the last time you monitored your business credit?
If you are like most small business people, you haven’t done it in quite a while. While that’s understandable, it is also a mistake - and a potentially costly one at that.
Example: Joe owned a computer repair shop for many years. It was an established and successful business, so he never thought much about business credit. He ran his business off of his profits.
Then the recession hit, and Joe’s business took a dive. The problem for Joe was that because he had been ignoring his business credit for so long, when he needed a short-term line of credit to tide him over, he couldn’t get it.
It turned out that for many years, inaccurate derogatory information was being reported to Joe’s business credit profile. A company with a similar name to Joe’s business had hit hard times too, started paying its bills late, and eventually filed for bankruptcy. All of that was, unbeknownst to Joe, mistakenly being reported onto his business credit report. Since Joe had not been monitoring his credit, he never caught the mistake, and when the time came for Joe to use what he thought was stellar credit to help his business, it was almost too late.
It took six months of letters, documentation, and acrimony before the errors were discovered and corrected, and in that time, Joe almost went under.
Don’t think that Joe’s experience is unique, because it’s not. More than one billion pieces of information are reported to personal and business credit files every month, so there are bound to be mistakes. The way the system is designed is so that it is incumbent upon you to make sure your credit profile is correct. It is your responsibility to check your credit, no one else’s.
Up front, it is important to note that your business credit should not be the same as your personal credit, although for a lot of small businesses it is. Most people start their business with their personal credit, at least partially. However as soon as you can, you need to separate the two. The way to do that is to set up a separate and distinct credit profile for your business. You do so by getting a taxpayer ID number from the IRS, and then a DUNS number from Dun & Bradstreet Credibility Corp.
You may also need to review your personal credit profile. You are allowed by law to receive a free personal credit report, once a year, from AnnualCreditReport.com.
Monitoring your credit report(s) allows you to:
Find and correct false information: As Joe’s cautionary tales exemplifies, you must monitor not only your personal credit profile, but your business profile as well.
There are any number of things that can be inaccurate on your business credit profile:
- Someone else’s bad information showing up on your credit report as yours
- Debts that are not yours being reported as yours
- Omissions of your good payment history
- Not having false or outdated information being removed after 7 to 10 years, as the law generally requires
And the beat goes on. It is vital therefore that you closely monitor your DUNS report so you can catch errors before they hurt your business.
Avoid identity theft: In this era where even large corporations can get hacked, it behooves all of us to keep a very watchful eye on our credit report. According to a study by McAfee, 60% of small business that are a victim of identity theft never recover and go out of business within six months.
Get the credit you deserve: The point of all of this monitoring is to make sure that your business credit report accurately reflects that you pay your bills on time, because once it does, it also shows potential lenders and investors that your business is a good risk. The likelihood that you will get the credit you need grows with each positive entry on your credit report.
Thus, by regularly monitoring your credit profile, paying your bills on time, and keeping your debt low, you may be able to get a good loan at a reasonable rate when you need it.
About Steve Strauss
Steven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest,The Small Business Bible, now out in a completely updated third edition. You can listen to his weekly podcast, Small Business Success, visit his new website TheSelfEmployed, and follow him on Twitter. © Steven D. Strauss.