SAN FRANCISCO (TheStreet) - If knowledge is power, then small businesses fall short on both. Large companies have access to financial intelligence that smaller companies don't, which gives them a huge advantage in assessing their competition and making strategic planning decisions.
Now, thanks to the Internet and its ability to rapidly disseminate information, the playing field is being leveled. Smaller companies are finding new ways to access commercial credit information -- a process that should help them manage risk more effectively.
For close to two years, we've been hearing about the credit squeeze and accompanying pullback in bank lending. But small-business lending is often peer-to-peer, such as when a supplier extends a short-term loan to a retailer stocking up on inventory. With profit margins tight, a supplier who doesn't deliver what they promised or a store that ignores a supplier's invoices can have a devastating impact.
It's relatively easy to figure out the creditworthiness of an individual. An apartment-building owner or car salesman can look at a person's credit score and get a good indication of whether that person can be trusted to pay on time. But getting comparable information for a business is much harder.
How do you judge if a potential supplier is dependable? Or find out if a company has a habit of paying invoices months past their due date? Knowing such information can be crucial to your bottom line.
But there's no easy way to judge risk when it comes to small businesses. Credit-rating agencies such as
Dun & Bradstreet
have detailed information on top companies, but not the small, private operations that smaller businesses are most likely to work with.
That's why a new model for commercial credit reporting could potentially change the game.
, a community-driven business credit bureau, allows small businesses to monitor, rate and exchange information on other businesses, using a peer-to-peer model rather than more traditional model of Dun & Bradstreet.
"Only 10,000 businesses report to the credit bureaus," says Alex Cote, vice president of market at San Francisco-based Cortera. "You're missing the small-business view of the world."
allow visitors to post comments about restaurants and hotels, this new credit marketplace promotes a ground-up approach. "The Internet has changed our view on how information is spread," says Cote.
This week, the company introduced a new product, Cortera Circles, that allow business owners to discuss their experiences with other businesses. A century ago, a town's leading business owners would gather to discuss their customers and suppliers as a way to minimize risk. Now, owners can join online groups through Cortera based on location, industry or other shared interests. Members can share experiences, ask for help or make referrals.
Any information shared will be public: "We want it to be as transparent as possible," says Cote. But circle members can restrict membership so that only trusted peers will be able to post comments or opinions. Think of it as a commercial-credit version of
Access to the community ratings and reviews is free. The company also sells individual credit reports for $3 per business and offers monthly subscription plans for those who want more detailed reports.
"Given what we've been through in the last 18 months, you want as much risk control as you can get," says Cote. "How do you build your own credit, while also protecting yourself on the receivables end? This gives you a place to have a voice."
But online ratings are only as good as the people who post them. There's definitely room for a credit-reporting community that meets the needs of small businesses. But it will only be credible if the reports posted are helpful and trustworthy. How it will fare long-term depends on how helpful and trustworthy those users are.
-- Reported by Elizabeth Blackwell in Chicago.
Elizabeth Blackwell is a freelance writer based in Chicago. She is the author of Frommer's Chicago guidebook, and writes for the Wall Street Journal, Chicago, and other national magazines.