How to build your business credit score

Business credit score

Most growing businesses will find that they need to seek out financing at some point. Whether it's to help even out cashflow, or invest in growth, business loans are an effective way to boost your working capital, which can help your business to reach its full potential.

When you apply for a business loan, through a bank or alternative loan provider, your business credit record will be taken into account when assessing your application. To get the most choice when applying for a business loan, and to access the best rates available, you would need a very high business credit score, which doesn't come without a significant positive history of borrowing and repaying on time.

How can I improve our business credit score?

Building a business credit score is about taking out credit through your business and handling it responsibly. This means, making sure you can afford repayments before committing to loans, repaying on time and not overextending yourself when it comes to debt.

Here are a few simple ways to build your business credit score:

  • If you’ve not taken out business finance before, start now. You can start small with a business credit card or a small shorter-term loan. Keep up with repayments and pay on time EVERY TIME. If you have a business credit card, don’t max it out right away. Credit reference agencies will take credit utilisation levels into account when assessing your business’s creditworthiness, so keep your credit utilisation under control.

  • Don’t be put off by one or two refusals. There is an enormous range of business finance providers out there these days. Just because your bank has turned you down for a business loan, you still have options. If a bank rejects your application for business finance, you may think that taking out a loan isn’t the right thing to do for your business. This isn’t necessarily the case. If you come to an alternative provider, they'll look at the bigger picture and make a decision based on more than just your existing credit profile.

  • File full accounts, on time. Lenders like to see that you’re on top of your business accounts and this includes filing full accounts to Companies House on time. Some lenders see businesses that file their accounts late to be struggling financially.

  • Do everything you can to improve your cashflow. For example, if you are always chasing clients for payment of late invoices, don’t be afraid to get tougher with them, spending more time on emailing and phoning late payers. Make sure clear payment terms are included in your invoices and reduce the number of days they can take to pay an invoice if necessary.

To sum up, building a stronger business credit score is a good idea for any business owner. Using business finance when you don’t NEED it can be a great way to build up your credit score when you do need it. For example, taking on a small business loan and repaying promptly, or using a business credit card here and there for certain payments, and settling on time, can demonstrate that you are in control of your business’s finances.

Then, if you need to take out a larger loan in the future, to pay for new premises, major investment, or increased production, for example, you’ll be in a strong position to negotiate great terms and rates.

Does your company need a good business credit score to get a loan?

If your business credit rating is less than perfect, alternative lenders will still consider you for a loan. For example, they will take many factors into account, including your business plan, your support network and your experience, when assessing your loan application. Nevertheless, the better your credit score, the better your chances are of being accepted.

How Long Does Negative Data Stay on My Business Credit Report?

The duration that negative information stays on your business credit report can vary depending on the type of information and the credit reporting agency. Generally, negative data such as late payments, defaults, or bankruptcies can stay on your business credit report for a certain number of years.

Late payments and other negative information typically remain on your business credit report for about seven years. Bankruptcies may stay on the report for a longer period, often up to ten years. It's important to note that different credit reporting agencies may have slightly different reporting practices, so it's advisable to check with each agency that compiles your business credit report.

Is having a good business credit score important?

Yes, having a strong business credit score is important for several reasons:

Access to financing: A strong business credit score can make it easier for your company to secure financing. Lenders, including banks and other financial institutions, often use your business credit score to assess the risk of lending to your company. A higher credit score may result in more favorable loan terms and lower interest rates.

Supplier relationships
: Some suppliers and vendors may check your business credit score before entering into a business relationship with you. A positive credit history can enhance your credibility and may lead to more favorable terms with suppliers.

Insurance premiums
: business insurance providers may consider your credit score when determining the premiums for your business insurance policies. A higher credit score can potentially lead to lower insurance costs.

Business opportunities
: A strong credit profile can open up new business opportunities. For example, it may make it easier to secure business partnerships, joint ventures, or other collaborations where your financial stability is a consideration.

Leasing and renting
: If your business needs to lease commercial space or rent equipment, a good credit score can make the process smoother. Landlords and lessors often check credit scores to assess the financial reliability of potential tenants.

Business credit cards
: A strong business credit score is crucial if you want to qualify for business credit cards with favorable terms. These cards can provide a convenient and flexible source of financing for your business expenses.

Business expansion
: When you have a solid credit history, it becomes easier to access additional capital for business expansion. This could include opening new locations, launching new product lines, or investing in technology and equipment.

Business reputation
: A positive credit history contributes to your business's overall reputation. It demonstrates financial responsibility and reliability, which can be important when building trust with clients, customers, and other stakeholders.

In summary, building a strong business credit score can be a helpful factor when seeing out finance to fund your business growth plans. Most businesses will need to find a source of finance to bring their plans for their business to life at some point, and during periods of rapid growth, taking out business finance can be a fundamental part of the process.

Businesses with strong credit ratings will have more choice when it comes to business finance options. They are also likely to find that the terms of their loan are more favourable, which means they may be able to take out larger loans and repay over a term that suits them. Interest rates may also be lower, as they present a lower risk to the lender.

Understanding and managing your business credit score
, it's essential to pay bills on time, manage credit responsibly, and regularly monitor your credit report for any inaccuracies. Building and maintaining good credit is an ongoing process that can have long-term benefits for your business.

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