When we talk about credit score, it turns the minds towards personal loan because it is the major credibility criteria to take a personal loan from mainstream regular banks or direct lenders. The salaried people have many other means also the borrow despite having bad credit score like the one payday loan where the salary cheque works as the collateral but business owners don’t have such liberty. As a business owner, have you ever thought about the credit score of your business? Yes, business credit score is different than to your credit score. Even if, you don’t anticipate borrowing the funds for small business, it is important to building business credit score just from right now.
Difference between Personal Credit Score and Business Credit Score:
Business credit score establishment is the key to raise the required finance and to ensure a smooth start-up business journey but if you already hold a bad personal credit report, the task becomes extremely frustrating. The personal credit report is your up to date financial history that might have red flags marking multiple credit applications, missed loan repayment, missed utility bill payment, not being registered at electoral register etc. The business credit score reflects the financial performance of the business; it indicates the lenders that whether you are a reliable and responsible borrower or not. The business score may be poor because of having missed debt repayment reports or multiple failures in borrowing from diverse sources.
Importance of Small Business Credit Score:
Credit facilities are the lifeblood for small businesses. Using business credit is not only a common need but it is a practice also. Start-up and operational costs are expensive, and you have limited funds in savings the account. The business loan helps to avoid the possibility of taking guarantor personal loan at high interest as well as with obligation. Meeting out anytime the financial needs of businesses for diverse objectives is not possible and practical at all. In addition, using personal credit for managing business needs backfires as well because you need more finances as the business grows.
A strong business credit ranking helps you securing loans at the best rates. All the financial institutions use business credit ratings to judge the credibility for requested loan. A strong business credit score also helps to get better terms from the genuine and leading suppliers in trade. The good business credit score helps to get volumetric contracts from the leading brands, Fortune 500 companies, Govt. agencies, and corporate offices as they always do value to the financial capability of a vendor.
Related: How to Get the FICO Score Free
What Is Good Business Credit Score?
The standard business credit rating is spanned from 0 to 100; higher credit score means the better chances of getting required credits at a reasonable price as well as more sources to borrow. Even if your business credit score is about 30- 50, you have good chances to get required finance from direct lenders but very low loan chances at Govt. financial institutions. If the business credit rating is around 20 or lower to it, you must do all the efforts to improve it immediately.
How To Improve Business Credit Score:
- Pay the bills on time- The negative record of payments indicates poor cash flow.
- Limit the credit usage – never use 100% of credits and limits.
- Keep the debts low – The lenders often see the payment liabilities of a borrower.
- Regularly check the credit rating through online resources; and, if you find anything inappropriate, ask the concerned agency to correct it.
- Register the business with credit reference agency to make sure that business transactions are recorded.
- Keep the credit to your suppliers under limits to protect the loss if something wrong happens to them.
- Do not close the account when the loan is paid off.
- Keep the personal finances adequate; if your business credit score is not available or not very impressive, the lenders often check your personal credit score also to make a deal.
- Don’t let the County Court Judgement come upon you; it will kill all the chances of getting reasonably priced credits even of the small amount.
Monitoring your credit report on a regular basis is the best way to tackle any financial problem early before it harms further. You can buy the credit reports compiled by credit reference agencies in the UK. These reports have a recommendation on a probability of on-time loan repayment. Each credit bureau applies a unique formula to calculate the business credit score; similarly, each lender explores your business profile with a different perspective. Each loan application is marked on credit report, even if it is rejected; therefore, each rejected loan application damages the credit history. The lending agencies also consider the difference between liabilities and current assets, so, the smooth cash flow contributes to higher credit rating. Good cash flow is a support to get the reasonably priced credit as it establishes business’s creditworthiness. Manage the business not only for growing at a good pace but also to create credibility for anytime borrowing.