A commercial credit report gives the risks and credit histories for commercial companies to potential lenders, in order to help them evaluate whether the company is able to repay back its debts.

Commercial credit report bureaus gather credit information on financial institutions and companies and sell this information to other companies, individuals and financial institutions. Even though this information is put to a variety of uses, it is generally sold to financial institutions or individuals who are interested in purchasing the companies bond or stock. At times this information is used to determine, whether the company satisfies the criteria needed before credit is extended.

This information is not gathered from one central source, but from a variety of sources. There are various commercial credit report agencies. Of these, the best known is Dun & Bradstreet, as it has been around for quite sometime. Mercantile agencies are a term that was used to refer to commercial credit report agencies. However, the term is no longer in use.

Credit is derived from Latin and is in reference to the credibility of an institution, company or individual to borrow or purchase on condition that the payment is made at a later date. Actual capital or goods are transferred and from one entity’s possession to that of another. The key element of this transaction is the vow to pay later according to terms that are already agreed on.

Such transactions might include collateral, which are equities or properties pledged as security by the debtor in the event that the debtor defaults on payments. In today’s world, much of the world’s business is based on credit and thus credit worthiness.

In many occasions when companies need to raise more capital or are in need of maintaining liquidity, they may decide to:

• Offer debt instruments for instance bonds
• Sell part of their company.

They may also decide to go directly to lending institutions such as pension funds, banks and other organizations to borrow money in the form of loans.

The practice of lending money is based on three factors:

• Capacity
• Character
• Capital

There is a risk involved in using any of these three as a basis to lend. Character for instance is associated with moral risk, lending on capital goes with property risk while using capacity as a basis for lending involves business risk.

It is for this reason that a commercial credit report exists; to evaluate the risk level associated with every loan that is made.

There are a number of important players that are associated with a commercial credit report. One of this is the National Association of Credit Management otherwise known as NACM. This credit organization was established in 1896 with an aim of solving a number of credit problems in relation to commercial credit. Some of these problems included misrepresentation, fraud, insatiable demand for credit and a lack of standardized bankruptcy law.

In recent years the NACM has become an organization that is run by its own members with its chief objective being able to maintain the growth of finance and credit communities and standing for business credit grantors in businesses such as wholesaling, manufacturing, service and financial sectors.

Another well known name in giving a commercial credit report is Moody’s Investor Service. Moody’s is still in existence and is now part of Dun and Bradstreet. Moody’s offers investors the chance to manage the credit risk of companies they have invested in.

There are two different kinds of commercial credit reporting agencies:

• Special
• General

Special agencies will only gather information associated with credit on specific activities for instance, bond offerings. On the other hand, general agencies deal with a much wider range of business activities in addition to issuing general and special reports. The general reports are usually published quarterly in credit reporting books.

These books are then leased to subscribers who are able to get a better picture of the creditworthiness of a huge number of companies. Dun and Bradstreet, has its own reference book which contains more than 3 million companies, each having a credit and capital rating. This book is updated twice a year.

Special reports are given to specific institutions or companies. Generally, they are available to agency customers on a contractual basis. Special reports tend to have a lot of information such as:

• Past Business Record
• Nature of Business
• Company’s History
• Liabilities
• Assets
• Most recent financial statement

And much more.