Why do most small businesses fail? The top two reasons are a lack of enough funding or poor management.
If you are doing business with a small business, you want to know whether either of these conditions exists before extending credit or placing an order. If a business is financially unstable, has excessive debt, or is not paying its bills on time, you need to know before you make a commitment.
A small business credit report can track the credit history of the business, provide a business credit score, and help you assess financial risk. It can help you make better decisions about who you do business with and on what terms.
However, there are times you need to go deeper into a company’s background to have a better understanding of their total credit picture. For example, a new business might not have been around long enough to establish credit. In this case, a small business credit report may not be able to provide enough information to make a decision.
However, there is information available to help you. The average age of a small business owner is 50. So, even if a business is new, someone that age will have established a pattern of credit use. Checking their personal credit history along with their business credit can provide a comprehensive look at their financial picture.
Another reason is how small businesses operate. According to the Small Business Administration, 73% of small businesses are sole proprietors. As such, there is no legal distinction between the owner and the business entity. Their fortunes are tied together and, if you are doing business with them, yours may be too.
Small Business Owner Report
A business credit report may show the business is creditworthy, but if the individual behind the business has financial trouble, it can affect their ability to pay you or provide the goods and services you need to operate.
A small business owner report can help you uncover the linkage between business and personal credit history to give you a more comprehensive picture. You need to know whether the business principal’s personal finances are supporting the business or vice versa.
For example, the business owner profile report provides personal credit information on a company’s principal or owner. Some of the information included contains:
- Identifying information
- General risk guidelines
- Personal credit score
- Summary of trade payments
- Delinquency chart
- Summary of legal filings, payments, and inquiries
- Consumer statement
- Recent credit inquiries
- Trade Information
- 24-month payment history
When you are working with a small business, especially one that is a sole proprietor, you need to understand both their business and personal creditworthiness. A small business owner report provides the information you need.
You can check on the owner of an unincorporated business, its general partners, company representatives that have guaranteed a business obligation, or anyone at the company who provides you with written authorization to review their personal credit history.
You may also want to consider a business owner background report. This is different than the business owner profile report and provides even more information about a business and its principals.
Small Business Owner Background Report
A business owner background report helps verify that the person you are working with is an authorized representative of the business and has not been linked to suspected fraud or illegal activity. You can also see current and former business affiliations along with performance metrics. This can help you see if they have worked for a company that performed poorly.
For example, if someone has a history of bankruptcies or failed businesses, it would not show up on a standard business credit report. However, it might significantly impact your decision about whether to extend credit or issue a purchase order.
Another area where a business owner background report is helpful is in establishing business linkage. There are plenty of examples where a principal had multiple business interests and one of them failed, causing a chain reaction that impacted other business interests negatively. In other words, one poorly performing business can bring down others.
The business owner background report helps you limit your exposure by providing credit information across all of the businesses someone is associated with.
Credit Reporting Services for Small Businesses
The ranks of small businesses are constantly shifting. The Small Business Administration (SBA) says that more than 600,000 new businesses open every year in the U.S. At the same time, more than half a million business close their doors each year.
With so much flux, you need an independent way to stay on top of the financial health of your customers and suppliers to protect your business. A credit reporting service for small business is an ideal solution.
Request a consultation to learn how using small business owner reports and small business credit reports can help you protect your business and make smarter decisions about risk.