Just as a personal credit score has an impact on an individual’s future financial life, a business credit score affects a company. Entrepreneurs should be aware that a business credit score is a very important figure for a startup, and it should be improved at all costs for the sake of securing better financial opportunities for the business. This article will examine the implications of a business credit score for the company whether it is a startup or a well-established venture.
What Determines a Business’s Credit Score?
Before we understand how the score affects the future of the business, let us look at what determines this important figure. Here are the typical factors that are considered by the credit bureaus when assigning the figure to a business.
- Length of credit history – startups may not enjoy this benefit initially, but it will be essential in the future. Older businesses that have maintained a good credit history have an edge.
- Payment history – whether it is the payment of bills, a credit balance or loan, the details will be added to your credit file for appropriate action.
- Credit utilization – the amount of debt you have at a particular time influences the score that you will get. Businesses that are deep in debt may have a low credit score compared to those with less debt.
- Type of credit used – all business people should know that the types of credit or credit mix that the business has matters a lot. The loan installments, credit cards and any other accounts that you have will determine the business credit score directly. Avoid those that are likely to cause problems.
Benefits of Good Credit for a Business
By looking at the benefits of having good business credit, entrepreneurs will better understand the impact. According to financial experts, a low credit score will just deny your venture all the benefits listed below.
- Ability to obtain loans – a business that can get more advantageous loans because it has a better credit score is safer. No one knows when the company will be affected financially and be in need of some urgent help. You can be certain that lenders will always look at the credit score to assess the amount of risk in lending money to your business.
- Opportunity for better business credit cards – a business should have a couple of business credit cards to benefit from them the most. But before a bank gives you one, they will want to know more about your financial management abilities. And there is no better way of discovering this than by using the business’s current credit score. If it is good, they will go ahead and issue the credit card.
- Low borrowing costs – although many entrepreneurs are oblivious to this, it is time to realize that having a better business credit score increases your ability to negotiate lower interest rates. Financial experts agree that most lenders will even extend a good deal if your business credit score is not completely perfect. They consider the risk of losing their money to be low.
- Business growth – everyone would like to enjoy steady business growth. For a business with an excellent credit score, the potential for growth is increased by the opportunity to borrow, gaining financial savings through low-interest loans, and many other benefits.
See, a good business credit score increases the number of financial benefits your business will enjoy in the future. Keeping it high is not difficult as long as one has some good strategies. Now that you have the right insights, it is time to put everything into action.