There’s a single number that can have a big impact on your pharmacy’s business: its credit score.
Just like individuals, businesses are awarded a credit score based on their financial history, and that value can affect your pharmacy’s ability to get a loan and establish good relationships with vendors.
Like your personal credit score, a business credit score doesn’t have a straightforward, easy-to-understand calculation, which means staying on top of it can be difficult.
Use this guide to understand how your credit score can be used, and learn tips for improving your credit score.
Business credit score basics
Business credit scores are conceptually similar to the credit scores awarded to individuals, but in practice, they work a bit differently.
Consumer credit scores land on a range from 300 to 850, while business credit scores are placed on a scale between zero and 100.
They are also awarded by different rating agencies. TransUnion, Equifax, and Experian are the main rating agencies used by consumer lenders. Business lenders refer to Dun & Bradstreet, Equifax, and Experian. Although some business lenders don’t use a rating agency at all and instead rely on their own proprietary formulas to calculate a business’s credit score.
If you want to find out what your pharmacy’s credit score is, it’s not something you can look up online. You’ll have to ask the rating agencies — and also pay them a fee.
How credit scores are used
Business credit scores are primarily used by lenders to decide if they should extend a loan to your pharmacy, and if so, how much.
In general, a higher credit score means you are more reliable and more likely to get a loan, while a low credit score tells lenders that you might be a risky investment. Typically, if a business has a credit score below 75, they will have a hard time securing a loan.
A business credit score isn’t the only thing lenders look at to make their decision — they will also take a look at your revenues and your debts.
Lenders aren’t the only ones to use business credit scores in their decision-making process. Sometimes, suppliers will look at your score before entering into business with you. If you have a high credit score, they may give you more favorable payment terms.
Improving your credit score
There’s no single action you can take to improve your credit score. Instead, you have to work to change the habits that got you into the position in the first place.
These are the main factors that need to be addressed in order to improve your business’s credit score:
- Business age: If you’ve just opened your pharmacy, the short credit history will mean a lower score. The longer you stay in business, the more your score will improve.
- Loan history: If you’ve taken out a loan or line of credit in the last year or so, it will negatively affect your score. Outstanding debts aren’t necessarily a negative factor, as long as you are paying them off in a timely manner.
- Payment history: A history of on-time payments will help to increase your score.
- Industry: If you are in a risky industry, that may be reflected in your score.
If your score has been dinged in one of these categories, as long as you change your ways, your score will often improve over the course of one or two years.
Sometimes, if you have a bad business credit score, lenders will take your personal credit score into account. However, that gives you personal liability, so mixing your business and personal finances should only be used as a last resort.
Credit score mistakes
Sometimes, mistakes make their way into your credit report. This is especially common if you have a common name, or your pharmacy has a name that could be easily confused with another business.
Because of this, it’s critical to check your credit report a few times a year. This will help you spot errors early, before they ruin your chance of getting a loan.
Fixing errors can take a long time — weeks or months — so let the credit reporting agencies know about them as soon as possible. Prepare supporting documentation to demonstrate your creditworthiness to show banks in case you need to secure financing before the error is fixed.
A Member-Owned Company Serving Independent Pharmacies
PBA Health is dedicated to helping independent pharmacies reach their full potential on the buy-side of their business. Founded and owned by pharmacists, PBA Health serves independent pharmacies with group purchasing services, wholesaler contract negotiations, proprietary purchasing tools, and more.
An HDA member, PBA Health operates its own NABP-accredited secondary wholesaler with more than 6,000 SKUs, including brands, generics, narcotics CII-CV, cold-storage products, and over-the-counter (OTC) products — offering the lowest prices in the secondary market.