If you are considering starting a business and looking for finance, then your business credit score is a critical determinant. The lenders offers loan if the business venture has a good credit score.
Like an individual borrower, even businesses or companies have credit scores assigned to them. Using this number, the lender checks whether providing a business loan is safe and whether the company will maintain consistent repayment. Once the lender is sure about the businesses’ financial stability and repayment management ability, they disburse the funds.
Here, we explain your business credit score, its importance, and how to ensure a high business credit score.
Business Credit Score: What is it?
A business credit score remains between 300 and 900, like your individual credit score. It indicates how worthy your company is and whether it is financially stable. The credit score is calculated based on the business’s credit accounts, financial statements, repayment behavior, ownership, business age, number of credit Inquiries, credit length, outstanding dues, credit mix, etc. All these details are imperative to assess risk and understand whether the company will repay the loan amount as scheduled.
How to Improve Your Business Credit Score?
Using the tips mentioned below, you can improve your business credit score and enjoy a host of benefits:
Review Business Credit Report
Get your business credit report and review it. Along with checking the score, you should also focus on reading all the details. Review the company information, financial records, unpaid balances, closed and open accounts, etc. This is essential to check whether every detail in it is correct or has errors. If you find any discrepancy in it, which is lowering your business score, you should dispute the same.
Timely Payment
One of the best tips to push the credit score up is to make timely payments diligently. The businesses that do not pay monthly dues or are caught defaulting, loose a good credit score. So, ensure to fulfil your financial obligations like loan EMIs, credit card bills, etc.
Credit Use
Another trick to maintaining your credit score is low credit utilization. When you keep your credit usage under the credit limit, you can have a low credit utilization rate and a high credit score.
Why Is a Business Credit Score Important?
A business needs funds for working capital, buying new machinery, procuring land, expanding operations, and more. A business loan is the best way to fund all the needs.
Here, we summarize the importance of credit scores for companies.
1. Higher Credibility
A good credit score means that you are reliable and trustworthy for lenders, customers, and investors. It fetches you a great reputation that you honour your financial commitments.
2. Loan Approval
The key to unlocking financial benefits and getting credit access is by increasing your business credit score.
3. Low interest rates
With a good business credit score, you get lower interest rate. Also, the businesses can negotiate for a low interest rate with the lenders, and the latter usually obliges!
4. Better Loan Terms
Other than a low-interest rate loan, the lenders please the businesses with high credit scores with better loan terms. For example, you can expect a more favourable and relaxed repayment term. This allows the businesses to lower their stress and pay their dues without defaulting.
Also, businesses with good credit can get higher loan amount. The lenders believe these businesses have shown responsible credit behaviour in the past and hope for the same.
5. Easy Future Loans
A good business credit score not only fetches you easy credit today but ensures the same for the future. When you work today on building a good credit score, you can stay assured that it will help you in the times to come.
6. Quick Borrowing
The lenders approve loan applications in a jiffy when a business has a good business credit score. Since lenders prefer financially reliable businesses, there is nothing to ponder upon and hold the application.
Wrapping Up
Now that you have understood the importance of credit score make a robust plan for improving it. With great credit, your business will become eligible for business loans, lower interest rates, flexible repayment terms, and a quick borrowing process. It will also help you in the future whenever you have the next loan requirement.
FAQs
1. What is a business credit score?
Ans. A business credit score means good financial standing and creditworthiness. If the company has been repaying its debts on time in the past, it will have a good credit score.
2. What are the benefits of a good business credit score?
Ans. It is important for faster loan access, desired terms like low interest rates, flexible repayment plans, and future growth opportunities.
3. Are my business credit score and personal credit score related?
Ans. Your business and personal credit score are is separate. They are not related to each other. However, if your bank accounts are linked to your business, it can influence your credit!
4. How can I make my business credit score better?
Ans. Ensure to make timely payments of the dues, lower your outstanding, effective credit utilization management, check your business credit report to find and dispute errors, etc.
5. How is a business credit score calculated?
Ans. A business credit score depends on past payments, credit usage rate, credit history, how many different types of credit your business is using, new credit inquiries, etc.
6. How to get business credit score?
Ans. A business credit score can be obtained from the credit bureaus directly using the relevant link on their platform.