Imagine a secret ingredient that, when added to your best recipes, would give you an edge over your competition.
When it comes to building credit for your business and securing financing, that secret ingredient could be the Small Business Financial Exchange (SBFE). If you’re like most business owners, you’ve never heard of it, and have no idea how it works.
What Is the SBFE?
Established in 2001, the SBFE is a member-owned trade association that collects business credit payment history from financial institutions and makes that information available to partner credit bureaus.
The SBFE operates on a "give-to-get" model, where members (primarily lenders) share payment data about businesses they work with and, in return, gain access to that information with the option to purchase more comprehensive credit reports through major business credit bureaus.
Why Should Bakery Owners Care?
When you apply for a business loan, equipment financing, or a new line of credit, lenders who are SBFE members may order credit reports containing SBFE data. This information about your payment history can impact your ability to:
- Secure financing for new equipment
- Obtain favorable terms on ingredient supply lines of credit
- Fund expansion to new locations
- Manage seasonal cash flow fluctuations
- Lease spaces in premium locations
What Information Does the SBFE Track?
If you've had business loans, credit cards, or equipment leases with SBFE member institutions, your payment history may be part of their database. This could include:
- Business identification information
- Payment history on loans and lines of credit
- Leasing payment records
- Credit limits and balances
- Business credit card activity
Importantly, the SBFE itself doesn't create credit scores or reports. Instead, it provides data to commercial credit bureaus like Dun & Bradstreet, Equifax, Experian, and LexisNexis Risk Solutions, which may then incorporate this information into the business credit reports they sell to SBFE members.
What this also means is that if you check your business credit reports with individual credit bureaus, they may or may not include SBFE data.
Building Strong Business Credit for Your Bakery
With an understanding of how the SBFE operates, here are practical steps bakery business owners can take to build and maintain strong business credit. These steps are similar to the ones you use to build strong business credit scores with any of the major credit bureaus.
1. Establish accounts that report to business credit bureaus
Make sure you're working with lenders who report to business credit bureaus. Building a strong foundation of positive payment history is key to securing better financing options down the road. Data reported to the SBFE comes from commercial lenders that report accounts where credit has been extended, such as lines of credit, term loans, leases and credit cards.
One option: Get a small business credit card, as all top ten business card issuers report to the SBFE.
2. Pay on time
You probably know that late payments appearing on your credit reports can really hurt your business credit scores and your ability to secure loans. But you may not realize that an on-time payment history is also essential to strong credit scores.
Without that positive payment information, it will be difficult for a credit scoring model to predict how a business is likely to handle financing in the future.
For many established businesses, it’s not late payments that are holding them back creditwise. Rather, it’s a lack of credit history.
Tip: Set up automatic payments where possible, especially for regular payments like equipment leases, business loans and credit cards.
3. Separate business and personal finances
Keep your personal and business finances separate by:
- Using dedicated business checking account
- Getting and using a business credit card or charge card
- Keeping detailed records of all business expenses
While bank accounts don’t typically appear on credit reports, keeping close tabs on your cash flow will make it less likely that you’ll pay late or get overextended.
4. Monitor your business credit reports
Unlike personal credit, business credit reports aren't covered by the Fair Credit Reporting Act. That’s the federal law that gives you the right to see your business credit reports for free at least once a year, to get a prompt response to a dispute if you find a mistake, and restricts who can access your credit reports.
Anyone can purchase business credit reports, and there aren’t dozens of places offering free business credit scores like there is with personal credit. Check your credit reports with major commercial credit bureaus on a regular basis to make sure they are accurate, and to monitor your progress as you build credit.
The Future of Bakery Financing
While the US specialty bakery market is expected to grow by $10.54 billion by 2026, according to Technavio, smaller bakeries may struggle to upgrade equipment, absorb higher costs for raw materials, and hire the staff they need to meet demand or grow.
Whether it’s saving a few percentage points in the interest rate on a loan, or securing a bid on a commercial contract, good credit can make a difference in the bottom line.
Understanding and leveraging SBFE data to help your business get the financing it needs gives your business one more way to continue to grow.
About the Author
Source: Gerri DetweilerGerri Detweiler has several decades of experience guiding individuals through the confusing world of credit, and has earned a reputation as a reliable and independent source on personal and small business credit. Today, Gerri serves as Education Consultant for Nav, a financial health platform for small businesses owners to build and manage their business and personal credit, track cash flow patterns, and understand their financing options before they apply.
