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How businesses can start on the road to credit


So how do you join those lucky folks in finding bank financing? Today, it takes a very proactive approach to building a strong credit score for your business

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Q&A with Jeff Stibel of Dun & Bradstreet

Jeff Stibel is CEO of Dun & Bradstreet Credibility Corp. — the company that creates your D&B business credit score. One of the biggest mistakes small business owners make is not being proactive in developing and maintaining a healthy credit score in order to be approved for expansion loans in the future, he says.

Bank credit is like water for small business owners — necessary to survive. If a banker has a hand on the spigot, Jeff Stibel’s company is the one whispering “yes” or “no” when you hold out your cup.

Stibel is chairman and CEO of The Dun & Bradstreet Credibility Corp., which issues the most widely used credit score that bankers use to decide which businesses get their thirsts quenched.

Feeling parched? You’re not alone. A summer 2012 survey by the National Small Business Association (NSBA) found that 43 percent of owners who sought outside financing in the past four years were unable to find any willing sources, and 29 percent saw their loans or credit lines reduced.

That said, plenty of small business owners have beaten the odds. The NSBA survey found that 43 percent of owners had used a revolving line of credit from a bank in the past 12 months.

So how do you join these lucky folks in finding bank financing? Today, it takes a very proactive approach to building a strong credit score for your business, Stibel says.

Many bankers rely on both business owners’ personal credit and the D&B score issued by Stibel’s firm to measure the business’s creditworthiness. D&B typically starts tracking a firm several months after it has formally gone into business and gets what is known as a DUNS number to put it on the firm’s radar screen, he says. That results in a D&B score or, in the case of larger firms, a similar measure called PAYDEX score. (See D&B’s business score products.)

Unfortunately, Stibel says, many small business owners don’t even know there is such a thing as a credit score for a business and therefore lose opportunities to improve their own.

Stibel is no stranger to the realities of running a small business. The serial entrepreneur is the former CEO and president of website and Web service provider (The graduate of Brown Univesrity also happens to be a brain scientist).

We spoke with Stibel recently on how small business owners can increase their business’s D&B score so they can get credit. What is the biggest error small business owners make in building the creditworthiness of their business?

Jeff Stibel: The No. 1 mistake is not being proactive. We talk to more than 10,000 businesses a week. So many of them say, “I just went to my bank. I need a loan to expand my business. They said they couldn’t give me one because of my D&B score. Why is that?” At that point, it’s largely too late. We’ll try to work with the owner and call the bank — but we’ll be starting from scratch and they might miss an opportunity [to get a loan]. How do banks actually use a business’s credit score?

Jeff Stibel: Banks almost universally rely on your PAYDEX score and D&B Score when they are checking your business credit file. Most small businesses don’t have enough of a file. If the file isn’t complete and there isn’t enough credit history, they will go back to your personal credit as well.

It is highly dependent on the situation and the case. For large businesses, banks almost universally rely on the PAYDEX score. For the smallest, newest businesses, they almost always rely on personal credit. It’s the ones in the middle — the ones that have been around a year or two — where the business credit file is so important. It is an opportunity to get away from a personal guarantee and get real business credit. Is there a minimum size for businesses to get a D&B score? Can a one-person business get one?

Jeff Stibel: When we give people a DUNS number — effectively a Social Security number for their business — we give that out to all businesses. We give it out for free when a business starts.

Businesses can work directly with us [to influence their score]. If you own a pizza shop in Des Moines and do business with a tomato sauce provider in Upstate New York, you can let us know. How do you come up with a business’s credit score?

Jeff Stibel: We need to see a certain amount of information and activity. The way that happens is through trade. If you open a business bank account, it is very likely that your bank partners with us. If you open a business credit card, we will be able to track those transactions. If you partner with vendors in the Fortune 500, many will report back on whether you are an early payer, pay on time or are a late payer.

Businesses can work directly with us [to influence their score]. If you own a pizza shop in Des Moines and do business with a tomato sauce provider in Upstate New York, you can let us know. We’ll independently verify that, and use it as a trade reference that will affect your credit. If you’re buying ink cartridges for your business with Hewlett-Packard or Staples, we could reach out to them and ask how much business you are doing with them, are you paying on time and are you a good partner? If I own a business, how can I check my own D&B score?

Jeff Stibel: A one-off report is as low as $50. Credit monitoring is $500 a year. What can business owners do to improve their firms’ credit scores?

Jeff Stibel: They can give us trade references, disclose revenues in a confidential way and give us information about the number of years in business and the number of employees. This information is self-reported. There are other companies springing up offering their own credit scoring systems for businesses as well. What industry trends do you see when it comes to evaluating businesses?

Jeff Stibel: The biggest shift is from credit to credibility.  It’s not just about quantitative scores. It’s about the qualitative. Is this a good person to do business with? If you look back at the financial crisis of the past four years, we got carried away with quantitative analysis and didn’t pay enough attention to qualitative analysis — the whites of the eyes of the business owner.

Our data sources have to be broader than trade activities. We are working with Twitter, Facebook, foursquare and LinkedIn to get access to all kinds of unique information. What are people tweeting about a business? Are there positive reviews on Yelp? That gives us a crowdsourced angle to credibility. What if people post false reviews on a social media site?

Jeff Stibel: We won’t just take reviews from any one source. We’ll take them from everywhere. We’ll do a distributed weighted average. It becomes incredibly difficult to game the system.

See related: Is bad credit bad for small business startups?, 6 questions to help you pick the right small business credit card, Business credit scores: What they are, how to boost yours

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