If you are a small business owner, there are some terms you need to fully understand: personal credit score, business credit score, and business credit profile. Understanding the differences between these terms will give you a better insight into your own business and will improve your chances to access cheaper capital when you apply for a loan.
Personal Credit Score vs Business Credit Score
Just as an individual has a personal credit score, a company has a business credit score. Understanding your personal credit score is relatively simple. The strength of your personal credit score is based on your payment history, the current level of debt, types of credit accounts available, length of credit history, and the number of recent credit applications. Similarly, businesses with access to credit are assigned a business credit score. A business credit score is determined based on credit history, public records, and demographic information.
Need to learn more? Find out here all the differences between personal credit and business credit
While personal and business credit scores are taken into consideration in the loan qualification process, it is crucial to acknowledge that both of these metrics are indicative of historical credit behavior. Neither of these metrics takes into consideration specific aspects of your business that drive or mitigate risk in the FUTURE. This is where we draw a line between understanding your business credit SCORE and your business credit PROFILE.
Business Credit Score and Business Credit Profile
Analyzing your business credit profile takes into account current and future inherent risks of your business. At Camino Financial, we qualify business risk into four categories: Financial Strength, Debt Capacity, Business Attributes and Credit History. Camino Financial qualifies risks by examining different category inputs. For instance, as a measure of Business Attributes, we evaluate how much a company’s top 3 customers generate in sales to see if there is heavy customer concentration. If top customers generate over 50% of sales, we highlight the possibility that losing a top customer may create high financial distress for the business. Further, we suggest the business take action to diversify its sales stream across other new customers. For more examples, see our credit assessment pyramid (image featured).
Need to learn more? Find out here the value of your business credit profile
How this Can Help You Access Capital
Once a small business owner has flagged potential risks in its business, then the business owner is equipped to make smarter financing and strategic decisions. Over time, a small business owner can take measures to lessen areas of operational risk, thus creating opportunities to access cheaper capital. At Camino Financial, we provide a FREE credit assessment report to small business owners to get businesses on the right path to affordable capital. Contact us to review our assessment options that suit your immediate and long-term business needs.