As summer winds down and back-to-school season ramps up, many working families are facing the familiar financial squeeze that comes with a new school Most of us are familiar with our personal credit score, often referred to as a FICO score. That three-digit number is the go-to measure banks use to gauge your creditworthiness. Keeping your FICO score strong — by paying bills on time, keeping debt levels low, and managing a healthy mix of credit types — is essential for securing better rates and terms on personal loans and mortgages.
But when it comes to business credit, things work a little differently. There isn’t just one universal “business FICO score” that all banks rely on. Instead, banks take a more comprehensive look at the overall health and history of your business before deciding whether to extend credit.
Understanding what banks evaluate — and how to strengthen those areas — can give your business a much better chance of getting the financing it needs to grow.
What Banks Look At
Here are a few of the key things lenders evaluate when reviewing a business credit application:
- Business credit reports: Just like personal credit reports, your business has profiles maintained by services such as Dun & Bradstreet, Experian Business, and Equifax Business. These reports track your payment history, credit lines, and business relationships.
- Accounts payable history: Paying your vendors and suppliers consistently and on time is one of the best ways to demonstrate your reliability. A pattern of timely payments reduces your risk profile in the eyes of lenders.
- Public records: Banks check for past bankruptcies, liens, or legal disputes. A clean legal record helps build confidence and trust in your ability to manage debt responsibly.
- References: Some lenders will go the extra step and ask for references from vendors, customers, or even other financial institutions. Strong relationships and good word-of-mouth carry weight.
- Cash Flow Coverage: Lenders want to see that your business generates enough cash flow to comfortably cover its debt payments. A common benchmark is a 1.20:1 ratio — meaning you should have at least $1.20 in cash flow for every $1.00 of debt service. If your cash flow falls short, it signals higher risk, and securing new financing can be difficult.
How to Build Stronger Business Credit
The good news is that building better business credit is within your control. Just like personal credit, it takes consistent effort and good habits. Here are five practical tips to get you started:
- Separate business and personal finances early. Open a business checking account and apply for a business credit card. Using these accounts for your company’s transactions helps establish credit in your business’s name and makes your finances easier to track.
- Pay every bill on time. It may sound simple, but this is the single most important habit you can build. Even one late payment can affect your business’s credit history and reputation.
- Leverage vendor and supplier relationships. If you have vendors who extend you credit and you pay them promptly, ask them to report your payment history to a business credit bureau. Those positive marks can help you build a stronger credit profile.
- Keep your records clean and organized. Accurate financial statements — including balance sheets, profit and loss statements, and tax filings — make a big difference when applying for financing. They show lenders you’re serious about managing your business.
- Work with a trusted CPA. A good accountant can do more than file taxes. They can help you keep your books in order, prepare you for loan applications, and identify strategies to strengthen your financial position.
Patience Pays Off
Remember, business credit isn’t built overnight. It takes time, consistency, and a track record of responsibility. But the payoff is worth it. When the time comes to purchase new equipment, expand your staff, or invest in a new location, having strong business credit can mean the difference between getting approved quickly — or being stuck watching opportunities pass you by.
At Midwest BankCentre, we’re proud to partner with hardworking small business owners across the Midwest, helping them build the financial foundation they need to succeed. If you’d like guidance on building business credit or preparing for financing, we’re here to help. Call us at 314-631-5500 or visit MidwestBankCentre.com to start the conversation.
Originally published in the Labor Tribune’s September publication by Wes Burns, Executive Vice President of Community and Economic Development.