by Pet Zeiser
Most people know about FICO scores — the primary metric for determining personal creditworthiness. Higher scores are better, and you can boost your score by paying bills on time, keeping balances low, and maintaining a mix of credit types. But when it comes to business credit, there’s no single number that banks rely on.
Instead, banks take a comprehensive approach to determine a business’s credit worthiness. They may use services like Dun & Bradstreet, and they’ll also check your personal FICO score — so keeping that strong is important. Banks will also look at your business’s accounts payable to assess whether you pay vendors on time, review public court records for past legal disputes, and even request references from customers, vendors, or other financial institutions.
Another key factor is making sure your business is not over-leveraged. Banks want to see a healthy balance between debt and equity. A good rule of thumb is a 3:1 ratio — $3 in liabilities/debt for every $1 of equity retained in the business. If your business is over-leveraged, securing new credit can be tough.
The best way to build business credit is to be proactive. Establish good financial habits early, maintain strong business relationships, and be prepared when the time comes to apply for funding. A solid reputation takes time and consistency, but it pays off when you need it most.
Answers provided by Pete Zeiser, President - Chesterfield Commercial at Midwest BankCentre. He can be reached at 314-633-6762 or pzeiser@midwestbankcentre.com.