7 Strategies to Leverage Alternative Data for Building Business Credit
Companies need to build business credit to survive. It unlocks financing options, better supplier terms, and more credibility.
But what do you do if you’re a startup or a small business without the traditional financial history lenders rely on?
Alternative data offers a solution, providing a broader view of creditworthiness. This article explores alternative data and seven strategies for building business credit.
Understanding the Landscape of Alternative Data for Business Credit
The Federal Reserve’s 2024 Report on Employer Firms found that only 59% of small businesses applied for financing in 2023, and 22% of them were denied.
Outcomes for loan, line of credit, or cash advance applicants in 2023
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The study also found that many businesses that didn’t apply for a business loan were discouraged because they didn’t have strong business financials.
These statistics show the need for a separate way to assess creditworthiness that doesn’t rely on traditional credit history. That’s what alternative data for business credit is all about.
Alternative data is any data outside the typical financial reports and credit scores traditionally used to assess business creditworthiness. It offers a more nuanced view of your business’s financial health, especially if you’re a small business owner or startup founder with limited credit history.
Traditional Data for Business Credit
To understand alternative data, we must first know what “normal” creditworthiness data looks like. The following table shows a list of traditional data points lenders typically use to assess, approve or deny credit:
| Data Category | Specific Data |
| Financial statements | – Balance sheet.
– Income statement. – Cash flow statement. |
| Business credit report | – Credit scores.
– Credit inquiries. – Public Records. |
| Business bank account information | – Bank statements.
– Banking history. |
| Business tax returns | – Income tax returns. |
| Debt schedules | – Existing business loans and liabilities.
– Credit payment history. – Credit utilization. – Terms. |
| Business/personal credit history | – Personal credit scores of owners/guarantors.
– Business credit history of owners. |
| Time in business | – Years in operation. |
| Industry and economic conditions | – Industry risk.
– Economic climate. |
You can consider any data that falls outside this table as alternative data. While it might be “non-traditional,” it doesn’t mean it’s less valuable. It can be a game-changer for businesses looking to build a strong credit profile.
Let’s look at the most common types of alternative data.
Payment History with Vendors and Suppliers: Establishing Trade References
Your vendors and suppliers are like your business credit heroes! If you deliver consistent, timely payments, they’ll serve as valuable trade references. These references prove to lenders and credit bureaus that you’re worth the risk, even without a long credit history.
Online Marketplace Sales Data: Showing Revenue and Growth
If your business operates on online marketplaces like Amazon or Etsy, your sales data can be a goldmine for building credit.
An online marketplace dashboard
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Lenders and credit bureaus are keen to see revenue generation and growth potential.
Customer Reviews and Reputation: Indicating Business Performance
Happy customers, happy lenders!
A positive reputation can be an effective tool in building business credit. It can indirectly boost your creditworthiness by signaling customer satisfaction and business performance—attractive qualities to most lenders.
Business Licenses and Registrations: Demonstrating Legitimacy
Having all the necessary business licenses and registrations in order shows that you’re playing by the rules. Doing so demonstrates legitimacy and operational compliance, which can positively impact your creditworthiness. Additionally, a well-structured legal foundation can make it easier to secure funding for new business ideas, as lenders and investors are more likely to trust a properly registered entity.
Industry-Specific Data: Tailored Insights for Lenders
Every industry has its unique metrics and KPIs that showcase performance and creditworthiness. For example:
- Construction companies can use project completion rates
- Restaurants can rely on online reservations and review data.
- For e-commerce, KPIs include customer lifetime value, cart abandonment rate, and return rate
- On-time delivery rate and inventory turnover are good for manufacturing companies.
- Healthcare providers can use patient satisfaction scores and readmission rates.
Six Strategies to Effectively Leverage Alternative Data
Now that you understand the landscape of alternative data, let’s explore six actionable strategies to leverage it for building business credit:
Strategy 1: Establish Net-30 Accounts with Vendors and Suppliers
Net-30 accounts allow you to purchase goods and services and pay for them later, typically within 30 days. Establishing Net-30 accounts with vendors and suppliers creates a valuable opportunity to build a positive payment history.
Pay your invoices and bills on time, every time. Doing so demonstrates financial responsibility and builds trust with your vendors.
Strategy 2: Connect Online Marketplace Sales Data to Business Credit Reports
By linking your e-store or online marketplace accounts to business credit reporting agencies, you allow them to factor your sales data into their assessment of your creditworthiness.
Linking your accounts provides a more complete picture of your business’s financial performance, even with a limited traditional business credit history.
Strategy 3: Encourage Positive Customer Reviews and Manage Online Reputation
Get customers to post reviews on review sites like Google My Business, Yelp, and others that are specific to your industry. Respond to reviews, address concerns, and showcase your commitment to customer satisfaction.
Strategy 4: Ensure All Business Licenses and Registrations are Up-to-Date
Keeping your business licenses and registrations current is essential for demonstrating legitimacy and operational compliance. This legitimacy can positively impact your creditworthiness and show lenders you’re a responsible business owner.
Remember to renew your licenses and registrations on time and keep them readily available.
Strategy 5: Establish Clear Corporate Credit Card Policies
Business cards can be valuable for building business credit, especially when used responsibly. Establishing a clear corporate credit card policy can help you demonstrate responsible financial management, enhance data visibility and reporting, and build a positive credit history.
This strategy demonstrates financial responsibility to lenders and credit bureaus. Business credit card policies also keep your expenses organized and will provide valuable data for normal credit reporting.
Strategy 6: Monitor Business Credit Reports Regularly
A recent survey by Nav found that a shocking 72% of business owners never check their business credit scores. Yet a study by the Consumer Reports and WorkMoney found that almost half of consumers who checked their credit scores spotted mistakes in them. More than a quarter reported serious mistakes involving debts that would harm their credit score.
So, a simple way to boost your score is to closely monitor your business credit reports from all major business credit bureaus (Equifax, Experian, Dun & Bradstreet). That way, you can quickly correct any errors that make your company look bad.
You can leverage business credit monitoring services if you don’t have the time to track your score.
Regular monitoring also helps you understand how your business credit score changes with different actions, like establishing Net-30 accounts or linking online marketplace data.
Strategy 7: Scout Out Fintech Companies and Alternative Lenders
Financial technology companies (fintechs) and alternative lenders often consider alternative data in their lending decisions. Focusing on these lenders makes the abovementioned strategies more powerful and effective.
Explore fintech platforms and alternative lenders catering to your needs and industry. They may be more willing to consider your alternative data when evaluating your creditworthiness.
The Benefits of Building Business Credit with Alternative Data
Leveraging alternative data for building business credit offers several benefits:
- Increased Access to Capital: By demonstrating creditworthiness through alternative data, you can access financing options earlier and with better credit limits that may not have been available otherwise.
- Better Financing Terms: A strong business credit score and profile, built with the help of alternative data, can help you secure better payment terms on loans, business credit cards, and credit lines.
- Enhanced Credibility: Building business credit enhances credibility with vendors, suppliers, and potential partners. It shows that you’re a reliable and trustworthy business.
Taking Control of Your Business Credit Narrative
Building business credit is a journey, not a destination. By leveraging alternative data and implementing the strategies outlined in this article, you can take control of your business credit narrative and pave the way for financial success. Building a strong business credit profile takes time and effort, but you can start early with alternative data.
Want to learn more about building business credit and accessing funding opportunities? Check out the Credit Suite blog for more helpful resources and expert advice.
