Published By Credit Suite at August 25th, 2016
What’s one of the top things keeping business owners from getting loan approval? Though not the only issue, lack of trade references is a real problem.
Trade references are like financial references for your business. Most business credit applications ask for 3 such references. Find out about trade references. They can truly help your business and so many business owners know absolutely nothing about them.
Dun & Bradstreet also lets you add these kinds of references to your D&B report if you sign up for their “Credit Builder” program. This is unique to D&B and is a “value added” service for enhancing the usefulness and attractiveness of your business credit report to lenders.
Commercial credit reports do not normally list them. And they are often from companies who do not usually report credit except in negative circumstances. This is with the exception of companies which use D&B’s Credit Builder.
In other words, the companies that you list as trade references often will not be reporting any payment experiences on your business credit report. So, these are commonly suppliers or vendors.
What this means is that these types of references serve to give lenders a look at how your business performs. And this is off of the official credit record. So to speak.
They can be seen as an extension of your business credit. Now, these are not normally on a credit report. But they are just as important as the information which is on your business credit report.
Banks will check these kinds of references. And they will get information on each reference. This is data such as the length of time the account has been open. And it also includes how many times you have paid late, and what the credit limit is.
When filling out a loan application, it’s a good idea to use such references. And they can come from both outside and inside your industry.
Companies that you have to pay usually aren’t acceptable as these sorts of references. For example if you fail to pay your rent or your electricity, there are immediate consequences.
For most companies, these core services are the highest priorities for payments. And they are the least likely to reflect negative payment experiences.
Non-reporting trade accounts can always be helpful. While you do want trade accounts to report to at least one of the CRAs, a trade account which does not report can yet be of some value.
You can always ask non-reporting accounts for trade references. Additionally, credit accounts of any sort can help you to better even out business expenditures, consequently making budgeting less complicated.
As a result, it quite literally pays to contact such merchants. After all, if you are not going to get an objective benefit of building your business credit, then you may as well get the benefit of a trade references.
And consider the following…
One of the harder business truths out there is that fewer than one in ten of all business credit vendors will report to the business credit reporting agencies. But they might report if your experience is a negative. It feels rather unfair, doesn’t it?
They will not report in a way so as to get you a benefit for properly paying your business credit vendor bills.
Yet they have no problem whatsoever reporting you when you mess up.
What’s up with that?
Subjective, positive information will never hurt your chances for getting business credit or business loans. This can be particularly useful for minority-owned businesses.
According to Forbes, there are major challenges faced by minority business owners in getting business funding. See forbes.com/sites/forbesfinancecouncil/2018/01/22/why-minorities-have-so-much-trouble-accessing-small-business-loans/#e1c24f855c41. This article echoes findings from 10 years ago by the Minority Business Development Agency. See mbda.gov/news/blog/2010/07/access-capital-still-challenge-minority-business-enterprises
In general, the level of wealth for Latino and African Americans is 11 to 16 times less than for Caucasians. White business owners typically have more working capital when they start their business.
For the most part, banks are not as likely to approve loans to applicants with less collateral to use against a loan. Lower net worth means less home ownership and fewer high-value assets to sell if a loan goes into default. This combination of less security and net worth means banks will likely issue smaller loans that need to be paid back quickly, if they issue loans at all.
Businesses owned by minorities in locations that have not traditionally supported new business, are not as likely to get funding. But in all fairness, this can be an issue for anyone trying for a loan for a business in a poor location.
Credit is a huge factor for banks when considering loan applications. Minority business owners tend to have lower credit scores, for all the reasons already listed. Banks and other traditional lenders are also more likely to want to do business with entrepreneurs who they already know.
That last point cannot be stressed enough. For a business not well known by a lending institution, how better to provide a kind of introduction to your business than via a trade reference? That’s one thing about trade references which business owners may not quite realize. You can use positive trade references as almost a letter of recommendation for your business. And, by extension – you.
The more likely candidates are vendors and suppliers who your company pays on time. This is even though they could in theory be put off for some time without consequence. So talk to them about trade references. They just might be receptive to the suggestion.
And it makes sense to not give up! If you are turned down for a trade reference, maybe it was because your business had too short a history with a particular vendor. Or maybe they felt it was too difficult to write one. And another reason could be that they did not know you well. Or maybe you just reached the one account representative who, for whatever reason, does not write trade references.
Why not try later (say, a quarter of a year later or so)? You’re a business person. You know that a “no” answer does not always have to mean it’s a “no” answer for ever and ever. When you are talking trade references, you may need to look at the big picture and the long term.
Build fundability! Fundability is essentially your business’s ability to get cash.
A business has to be fundable to credit issuers and vendors.
For this reason, a small business needs a professional-looking website and e-mail address. And it needs to have website hosting from a vendor like GoDaddy.
And, company phone and fax numbers should have a listing on 411. You can do that here: https://www.listyourself.net.
Also, the business phone number should be toll-free (800 exchange or comparable).
A small business also needs a bank account dedicated purely to it. And it needs to have all of the licenses necessary for running.
These licenses all must be in the accurate, accurate name of the small business. And they must have the same company address and telephone numbers.
So keep in mind, that this means not just state licenses, but possibly also city licenses. Very often, your local Secretary of State’s office can be helpful when it comes to licensing. You may also want to talk to members of any professional organization you may be a member of (assuming the organization is specifically dedicated to your industry).
Being fundable means your business will be a bit less dependent upon trade references or one single credit issuer or lending institution. Independence for your business is a good goal to have no matter what. Being independent also means you can shop around when it comes to financing terms and rates. Better fundability can be a difference maker when it comes to how much interest your business will pay, as well.
Of course, the most vital part of business credit building is paying your bills on time. Paying on time, and in full, will do far more to improve your business credit scores than just about anything else. Furthermore, paying on time will bring along with it other positives, such as a better credit utilization percentage.
There is a lot to like about trade references. No matter how old or fundable your business is, they are a good idea. Round out your business credit records with one today!