When you decide to seek financing for your company, your credit becomes a key factor in determining your eligibility. Both your personal and business credit reports, which are independent from one another, play important roles in your lender's decision-making process. Lenders will look at your personal and business credit history, including your credit score, payment history, outstanding debts, and past delinquencies. A strong credit profile can boost your chances of securing financing with favorable terms, such as lower interest rates and higher borrowing limits.
The three major credit bureaus in the United States—Equifax®, Experian®, and TransUnion®—gather your credit history from lenders to create personal credit reports. For business credit reports, the main bureaus are Dun & Bradstreet (D&B), Experian Business®, and Equifax Small Business®. This article from Huddle Business Capital will focus on the PayNet® Report from Equifax Small Business®, the industry-standard credit report lenders use to assess the financial health and default risk of businesses.
If you are not familiar with the PayNet® Report or need more information about it, we've got you covered.
The PayNet® Report features the PayNet® MasterScore, now known as MasterScore® v2. This business credit score was developed by Equifax®, which acquired PayNet® in April 2019.1 The PayNet® MasterScore® measures a company's likelihood of defaulting on a loan or lease based on its borrowing and payment history.
Not every business has a PayNet® Report. To obtain one, a company must have previously taken out a business loan, an equipment loan, an equipment lease, or a business line of credit. If your company has a PayNet® Report, it will include details such as your payment history (including loans and leases), any payment delinquencies, and public records such as bankruptcies or tax liens. This information, along with many other variables, is used to calculate your PayNet® MasterScore®.
The PayNet® MasterScore® v2 ranges from 450 to 800. Higher scores are beneficial as they indicate a lower likelihood of payment default. Specifically, scores between 700 and 800 are considered low risk based on a history of timely repayments. If your score falls within this range, you can expect quick approvals for business funding with minimal financial documentation.
Scores between 600 and 699 are considered moderate risk. If your score is within this range, your lender may request additional underwriting or financial statements when reviewing your application.
Lastly, scores between 450 and 599 are classified as high risk because they represent previous default on loan or lease obligations. If your score falls within this range, you may find it difficult to obtain approval for business funding. If your application is approved, it is likely to come with a higher interest rate.
Your credit score is a primary measure for determining your business's funding eligibility and borrowing power. However, another important aspect to consider is your company's payment history over the past 12 months, commonly known as a compensating factor or comp debt. This comes into play if you fall outside your lender's basic guidelines, perhaps due to a lower credit score, reduced revenue, or a shorter operational history.
So, if you are seeking a business loan for $80,000, you will need to provide your lender with proof of a consistent track record of on-time payments for a single loan of 50% of the new loan request, or $40,000. Please note that lenders will not consider multiple loans totaling $40,000.
As mentioned earlier in this blog article, you likely have a PayNet® Report if you have taken out a business loan, equipment loan, equipment lease, or business line of credit. You can request a copy of your company's PayNet® Report online through Equifax® Commercial or from an authorized third-party credit report provider. Please note that the fee for this service may vary depending on where you obtain your PayNet® Report.
Once you receive your PayNet® report, set aside time to review it thoroughly. Look for any errors or inconsistencies in your payment history, and check to ensure the balances on any loans, leases, or credit lines are accurate. If you find any mistakes or discrepancies, contact Equifax® Commercial to report them and request an update to your credit profile.
As we mentioned earlier in this blog post, the information in a PayNet® Report, particularly the PayNet® MasterScore® v2, helps lenders assess the risks associated with businesses seeking funding. Additionally, the comprehensive nature of the PayNet® Report—encompassing 587 variables, including 135 unique factors and 29 specialized scorecards2—enables lenders to automate their decision-making process and fund approved deals faster.
This streamlined approach to borrowing is a huge benefit for you and your business, especially when you need to secure growth capital quickly.
If, after reviewing your PayNet Report, you find your credit score needs improvement, there are strategies to achieve this. First, it's important to keep your business and personal finances separate. You can do this by setting up dedicated bank accounts for each and avoiding the use of personal credit cards or savings for business expenses, and vice versa.
Next, make sure to pay all your bills on time. Paying your bills early can also improve your credit score and create a positive impression with your vendors and suppliers.
Finally, avoid opening too many credit cards or taking out excessive loans. Each credit card and loan increases your debt load, which can negatively impact your credit score.
1 - https://investor.equifax.com/news-events/press-releases/detail/123/equifax-acquires-paynet-to-help-expand-access-to-capital
2 - https://www.equifax.com/business/product/masterscore/
This Huddle Business Capital blog article is purely educational and contains general information and opinions; it is not intended to provide advice or recommendations of any kind. Huddle Business Capital is not affiliated with nor endorses the companies mentioned in this article.