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High Risk Business Credit – What It Is and How to Avoid It

Being labeled “high risk” in business credit is almost the ‘kiss of death’. What defines almost in this case is a complicated and often expensive process of corporate restructuring so that your business can start with a clean credit slate again. Credit reporting agencies and bureaus have intricate methods of assessing your business for thousands of checks and the results of these compliance items or formalities are available to be purchased in the form of a business history or credit report. If your business isn’t prepared for the credit process, and has credit activity being reported without proper compliance, everyone has access to that information from the reporting bureaus. The result? Your business credit profile is labeled high risk. Find out how to avoid this type of disaster.

How to Avoid High Risk Credit

One of the biggest mistakes an entrepreneur can make is to start applying for credit with vendors prior to completing business credit compliance. If you don’t check your compliance, somebody else will. Applying for credit will result in a business credit check and in some cases you will be granted credit by some lenders with little or no credit history. Getting credit before you’re ready could leave you with a high risk label… and here’s how:

Dun and Bradstreet is a premier business credit reporting organization. Anyone can purchase a business profile, credit history or information report online for your business. Costs range between $35 and $200 for various reports. If you were a lender considering granting thousands of dollars worth of credit to a business, would you spend a couple hundred dollars to make sure you are protecting yourself? Of course. So they all will seek some level of information about your business. Once these businesses inquire about your organization, they are stored in the D&B database as an interested party in your business’ credit worthiness. When Dun and Bradstreet has credit activity in their system associated with your business, there are a number of checks that take place. Compliance checks.

Get in Compliance

If your business is not in compliance, the scrutiny doesn’t have to go very far until you appear to be outside of credit compliance thresholds. Once D&B finds out that your business doesn’t fit their mold, they notify the organizations that were, or are still, interested in your business’ credit worthiness. Here comes the ringer; once you have applied for credit, or worse have credit, and are outside compliance, D&B will notify each of the organizations that sought information about your business and let them know that you fail to meet simple credit compliance. This is when your business gets tagged as ‘high risk’.

If this happens to you, your chances of building positive business credit are ruined… and here’s why; with consumer credit reporting, there are fair credit reporting acts on your side. Laws that protect consumers from reporting discrepancies. You can legally challenge any item on your consumer credit report and credit reporting bureaus have to play along. With business credit, that isn’t the case, you don’t have pages of legal statutes that you can take advantage of to sponge your business’ credit report of red flags or high risk classifications.

It’s Practically Irreversible

So far there isn’t a way to “reverse” a business being labeled high risk. You can call a lot of professionals and ask what your options are and sadly, one of the ones you’ll hear the most is to dissolve your current legal structure and start over. Major reorganization is the next step which is complex and expensive, but it can be done. In either case, neither of those options are all that attractive.

How can this be avoided? Simple. Hire a business credit coach. Call us. Make sure your business passes the compliance checks that creditors, agencies and reporting bureaus will check for you. Now that raises the big question, how do you know what compliance checks apply to you? That is going to be another post, the answer to that is longer than how to avoid being labeled high risk with your business credit profile.