Business Credit

Business Credit

Credit health impacts businesses every day; in the same manner that your personal scores serve as financial ratings for your as an individual, your business credit scores rank the creditworthiness of your business. Lenders and creditors need a means of determining how well your business repays debts before they will approve you for financing.

Strong business credit strengthens bank relationships; higher scores tell lenders that your business is trustworthy, thereby improving your odds of successful funding. Lenders can also check your company’s business credit reports to get more detailed information about your business’s financial history, and the business credit scores serve as shorthand evaluations.

How Business Credit Scores Are Used:

Lenders and other creditors need a means of determining how well your business repays debts before they will approve you for financing. This is where business credit scores come in. Higher scores indicate to creditors that your business is more trustworthy, thereby improving the odds that you can obtain financing. Lenders can check your company’s business credit reports to get more detailed information about your business’s financial history, and business credit scores serves as shorthand evaluations. Here are three other ways your business credit scores are used:

  1. Determine your borrowing power: Your business credit report and score can determine how much financing you are able to secure.

  2. Determine your rates on business insurance: Some insurance providers evaluate a business owner’s credit as well as the business’s credit to determine rates on commercial insurance.

  3. Determine terms you can secure with vendors and suppliers: Vendors and suppliers sometimes look at a business’s credit scores to decide how long of a grace period to give the business before demanding payment for goods and services. These terms are express in “net” terms—” Net-30” would mean your business has 30 days to post payment. Securing longer terms on your terms with suppliers is a great way to help even out cash flow.

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Business Credit Bureau Score Range
Dun & Bradstreet PAYDEX 0 - 100
Intelliscore PlusSM from Experian 0 - 100
FICO® LiquidCredit® Small Business Scoring Service℠ 0 - 300
Equifax Business Delinquency Risk Score 101 - 992

Dun & Bradstreet PAYDEX

The PAYDEX is a unique, dollar weighted indicator of a business’s payment performance based on the total number of payment experiences in Dun & Bradstreet’s file. The Dun & Bradstreet PAYDEX ranges from 1 to 100, with higher scores indicating better payment performance. PAYDEX is primarily used by vendors and suppliers to judge your business when determining what terms to extend on trade credit (e.g., net 30, net 60, etc.). Typically, the better the score, the more generous the terms extended.

D&B Comprehensive Report


Experian Intelliscore Plus

The Experian Intelliscore Plus is a statistically based credit-risk score that can combine business and proprietor credit data to predict the likelihood of serious delinquency in the next 12 months. Scores range from 1 to 100, where lower scores (score range below) indicate higher risk. The Intelliscore Plus is regarded in the credit industry as quite predictive and economical. It incorporates statistical modeling using over 800 commercial and owner variables – including tradeline and collection information, recent credit inquiries, public filings, new account activity, key financial ratios and other performance indicators.

Experian Business Premier Profile


Equifax Business Delinquency Risk Score

The Business Credit Risk Score indicates the likelihood that your business will incur a 90 day or more delinquency or charge-off over the next year. The score ranges from 101 to 992, with a higher score indicating lower risk. A score of 566 or above is considered acceptable to good. A score of 0 indicates that your business has a bankruptcy on file. The Business Failure Score predicts the possibility of your business failing over the next year, whether informally or formally through bankruptcy. Scores are set from 1000 to 1880, and like the Credit Risk Score, higher scores are better and a score of 0 indicates a bankruptcy on file for your business.

Equifax Business Credit Industry Report 2.0


FICO LiquidCredit Small Business Scoring Service

FICO’s Small Business Scoring Service (SBSS) rank-orders applicants by their likelihood of making payments on time. The score ranges from 0 to 300. The higher the score, the better. The scoring is based upon personal and business credit history and other financial information. A strong history of business credit with timely payments to vendors and suppliers may help boost your SBSS score. The FICO SBSS score will be used for term loans, lines of credit, and commercial loans up to $350,000 from the Small Business Administration (SBA). The minimum score to pass the SBA’s pre-screen process is currently 140.

FICO Liquid Credit SBSS


3 Basic Types of Unsecured Business Credit Lines


Trade Credit / Vendor Credit

The first type of Unsecured Business Credit Line we talk about is commonly known as Trade Credit or Vendor Credit. These credit lines are issued by different companies and suppliers that offer revolving accounts only good with their business. Home Depot, Office Max, Lowes, Chevron, Dell are some of the more recognizable names; there are literally thousands of vendors offering credit to businesses every day.

Here’s an example: You're a plumber working on a commercial job and you need 3 large rooftop air conditioners to be installed at the school you're working at; you pick up the units from ABC Plumbing Supply and they invoice your company expecting payment for the units within 30 days. That's Trade Credit. It's normal. It's common. It’s used thousands of times every single day by businesses of all shapes and sizes.

If a business cannot obtain all its desired funding from banks, it is likely and logical that the business will turn to alternative sources of funds.

Trade credit plays a critical role in strengthening bank relationships and the major advantages of having a Paydex and Intelliscore of 80 or better with several qualified trade lines reporting to Dun & Bradstreet and Experian Business are:

  1. Better chance of loan approval
  2. Typically approved for higher dollar amounts
  3. Lower interest rates on other loans and credit lines

Trade credit is a substantial part of the optimal financing mix. A 2019 Small Business Credit Survey ranked external financing used by employer firms in order of importance:

  1. Loans & Credit Lines
  2. Credit Cards
  3. Trade Credit
  4. Leasing
  5. Merchant Cash Advance
  6. Factoring

Small Business Credit Survey


The role of trade credit in a business’s capital structure can play a vital role in managing cash flow especially when bank loans or credit lines are not available. Here are some other characteristics of trade credit:

  • Trade credit can be used to finance a portion of a firm’s investments in inventory or accounts receivable.
  • Trade credit allows a business to better match the timing of cash outlays for the cost of goods sold with the cash receipts from sales.
  • Trade credit plays a critical role in a firm’s quality control efforts by allowing them to verify product quality before paying.
  • Due to its revolving nature, a business can find it less costly to delay vendor credit payments than to renegotiate the payment terms of bank loans.
  • Delayed vendor credit payments could help fund capital investments.
  • Suppliers encourage early payment with incentives, such as discounts for invoices paid within a certain time.
  • Terms are usually Net 30 or Revolving.
  • Revolving terms are much more valuable and desirable since you do not have to pay the balance in full.
  • There's virtually no end to the number of vendors you could establish trade accounts with. The only catch is that not all businesses offer these types of business credit accounts.
  • Net 30 terms basically have no "cost" but could assess fees in some cases if they are not paid within the 30 days. Some offer 2% discounts if the invoice is paid within 10 days.
  • Companies that issue trade credit with revolving terms typically has high APR's or annual percentage rates. Companies like Dell, Staples, Home Depot, Wal-Mart, Exxon, and Shell all offer revolving terms and you'll likely see APR's from 14-29%.
  • With trade credit, your personal credit profile and scores are typically less important and often irrelevant.
  • You can obtain trade credit as a new business, although it is more challenging and does require a plan or a strategy that knows which businesses to set these accounts up with first.
  • You will rarely need full financials to establish trade credit.

Trade credit is by far the easiest of the 3 Unsecured Business Credit Lines to obtain, primarily because you can obtain most trade credit lines without a personal guarantee. Getting favorable terms can be invaluable for you as you build your business. It's also important to note that favorable terms should be thought of in terms of the cash-flow more than the interest rate. In other words, would you prefer a rate of 13% with a lower monthly payment, or a rate of 9% with a much higher monthly payment? Most people would like the lower payments. Look for "cash-flow friendly" financing as you're seeking your capital.


Business Credit Cards

The second, and probably most popular type of Unsecured Business Credit Line is a Business Credit Card. Business credit cards are the most commonly used form of financing for small business owners, in fact, there's not even a close second since credit card financing is so far ahead of all other forms of borrowing in the small business sector. According to the Meredith Whitney Advisory Group, 82% of small business owners use credit cards as a "vital part" of their overall funding strategy. Also, according to NFIB, 79% of small business owners use credit cards. Here are some characteristics and facts about Business Credit Cards:

  • Although there are some rare (and we mean "VERY rare") exceptions, business credit cards will require a PG or Personal Guarantee so don't buy the hype that a business credit card doesn't require a PG.
  • Most business credit cards come with 0% intro offers. Not all of them, but most do.
  • According to creditcards.com the national average interest rate for business credit cards is 12.98% (as of July 2, 2013).
  • Our internal case study found that the clients we polled were paying blended rates between 5.0 - 8.96% on their business credit cards and these are all based on rates AFTER the 0% introductory offers expired.
  • Business credit cards, when the right ones are used and properly set up, allow you to separate your business and personal credit.
  • Your personal credit is very important and will be looked at as part of the underwriting process in order to get approved.
  • You can be a startup business that has not made money and still get business credit cards.
  • It is rare for lenders to request full financials as part of their approval process.
  • When originated and obtained properly you can protect, preserve, and improve your personal credit profile and FICO scores while borrowing money for your business. It's the best of both worlds.
  • Credit card financing is what we call "cash-flow friendly"… what we mean is that the required monthly payment is about as minimal as you can find with any kind of financing solution. Since we all say that Cash-Flow is King we can't forget that when we borrow money. Example: If you borrow $50,000 would you rather pay back $3,000/month or would you prefer the flexibility of paying as much as you want with a minimum required payment of $1000/month?

Unsecured Bank Line / Unsecured Bank Draft

The Unsecured Traditional Bank Line of Credit or Unsecured Bank Draft. These are the larger unsecured business credit Lines that tend to normally be between $50,000 - $100,000 and can sometimes go as high as $250,000. Traditional business lines of credit rarely go above $250,000 without collateral. Keep in mind, A LOT of lenders will say they offer these for over $100,000 or over $250,000 but what they are going to give you will come with a UCC filing. A UCC is a lien just like a mortgage is a lien. Any business loan or business line of credit that comes with a UCC filing is not unsecured. That doesn't mean it's bad, it just means it's not unsecured. Here are some characteristics of traditional unsecured bank lines / unsecured bank drafts:

  • Very difficult to obtain but also the most sought-after of the 3 kinds of UBL's.
  • Terms are usually anywhere from Prime + 1% to Prime + 6%.
  • These are probably the #1 product in small business banking portfolios that get reviewed or taken away when a bank is in trouble or looking to clean up their balance sheet.
  • All owners of the business who own at least 20% of the business will probably need to have very good personal credit.
  • You will need to be in business for at least 2 years, the longer the better.
  • You probably need to have revenues of $400-500k in your last taxable year - meaning those tax returns need to have already been filed - for these to even be possible.
  • In most cases you'll need to submit full financial packages to the lender or lenders.
  • You cannot be in high-risk industries like restaurants, real estate development, or retail in nature.
  • Upon approval the banks will issue you a book of checks and attach your unsecured business line of credit to your checking account. You can draw on the money as needed for working capital, financing receivables, or a variety of other business needs as they arise.
  • Most lenders, when originating these business lines of credit without collateral, will go "up to" 10-15% of your gross revenues and will limit the total amount of the line of credit to a cap. Caps are most of the time between $50,000 - $100,000.

Traditional bank lines of credit are the most difficult to obtain due to the combination of only a minimal number of banks offering them and the revenue/seasoning requirements.

Keep in mind that only about 11% of the 25-30 million small businesses in the U.S. have done over $300,000 in annual revenues. Then when you pull out the small business owners who do not have good personal credit and the high-risk industries and you can see that this is only for a chosen few. There are 3 big reasons, in order, why many business owners cannot get these $100,000 lines of credit:

  1. They are a start-up with no financials, or they have not grown their business to the revenue levels required.
  2. They are in a high-risk industry (real estate, restaurants, retail).
  3. Their personal credit is damaged and/or they did not build business credit.

Epic Capital Business Success System

Our proprietary Business Success System is designed to position you for immediate and long-term funding by optimizing your personal credit and building business credit with the major credit bureaus.

  • 100% digital platform with virtual coaching & helpdesk support
  • Simple software interface with advanced functionality
  • Simple enrollment = lifetime membership
  • Comprehensive, structured online curriculum to ensure your success
  • Business vault loaded with resources, e-books & video tutorials to keep you motivated
  • Designed to help you access $50,000 or more in No-PG (no personal guarantee) unsecured business credit lines

WHO WE ARE

At Epic Capital Solutions, we all come to work every day because we want to solve one of the biggest problems faced by entrepreneurs: Not having enough money to start, build or grow your dream business.
We find that most people looking to fund their businesses do not possess the tools or resources needed to properly structure themselves for successful financing, and with so many loan products available in today’s marketplace, we know it can be a daunting task. Our mission is to make the process of business funding less stressful, more transparent, and less expensive. We are here to get you funded!

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