Small Business: Your credit score and financing

It can be difficult for businesses to get

It can be difficult for businesses to get financing these days, and so it is very important that a small business owner keep the credit scores as high as possible, experts say. (Credit: Photos.com)

Jamie Herzlich

Newsday columnist Jamie Herzlich Jamie Herzlich

Herzlich writes the Small Business column in Newsday.

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It can be difficult for businesses to get financing these days.

Lending has tightened and an entrepreneur's credit history plays an important role in his or her ability to obtain capital.

Improving your credit score can help increase your odds of finding financing at favorable terms, experts say.

"Most businesses rely at some point and in some form on credit," said Liz Weston, a Los Angeles-based personal-finance columnist for MSN Money and author of "Your Credit Score" (FT Press; $19.99). "Having a great credit score means you have access to credit at a really good rate."

Entrepreneurs should know their personal FICO  credit score because most small businesses have to rely on the owner's score to obtain financing, says Weston.

You can purchase your Equifax and TransUnion FICO scores at www.myFICO.com, she said. FICO scores range from 300 to 850. (Click here for more on FICO, at myfico.com/crediteducation/WhatsInYourScore.aspx

In general, "an excellent credit score would be 750 to 760 and above," she said. But that can vary for each lender.

Still, even those with poor credit scores could work to boost them over time.

One of the best ways to do that is paying your bills on time, said John Bozek, vice president of small-business lending for the Community Development Corp. of Long Island in Centereach, which provides small-business financing and technical assistance. Late payments will adversely affect your personal credit score, he said.

On the flip side, if you want to start building your businesses' credit history, get a credit card in your business' name, he said, advising companies to separate business and personal expenses.

That's what Praveen Elak, co-founder and chief executive of Mobitrons, which provides a software framework to develop enterprise mobile applications, has done.

The company, which is relocating from Tarrytown to Hauppauge, has been providing mobile consulting services for four years under a different name, but rebranded as Mobitrons and set up a separate corporation in early 2012.

"We're making sure we have a business credit history," he said, adding they have a dedicated business bank account and business credit card. Paying attention to his business credit score is important, he said. Dun & Bradstreet is one of the companies that has a commercial credit-scoring system. (See https://mycredit.dnb.com/glossaries/commercial-credit-score/)

While Mobitrons has been using angel, venture capital and personal funds so far, it may seek traditional bank financing down the line.

"We want to make sure our credit history is developed and in place," Elak said.

Beyond developing a credit history, knowing what's in it is important, said Linda Ferrari, a Newport Beach, Calif., credit score expert and author of "The Big Score" (Consumer Power Press; $29.95).

If you're "superactive" with your credit, you want to check your credit report every six months and if not, then annually is good, she said.

She's reviewed thousands of credit reports and said the vast majority have errors, including inaccurate name variations.

You can check your credit reports from all three major credit bureaus -- Experian, Equifax and TransUnion -- for free once a year at AnnualCreditReport.com, Bozek said.

Make sure your credit card limits are accurately reported to all three bureaus and all your good credit is being reported as well, Ferrari said.

Also be mindful of your balances. Using 30 percent or less of your credit limit is good, using 20 percent or less is better and using 10 percent or less is best, Weston said. Pushing it too close to your credit limit impacts your score.

Also, if you're in credit score improvement mode, don't close accounts even if you're not using them.

"When you close an account you shut off available credit," Weston said. "It makes your existing balances look like they're bigger."

MIND THOSE PAYMENTS

If you have excellent credit, you could lose 110 points instantly off your credit score with one missed payment.

Source: Liz Weston