13 Aug 2020
The solvency of your business, how up-to-date your business accounts are and how quickly you pay suppliers are all factors that can contribute towards your business credit score. Finance lenders check this information when you apply for a loan to understand the level of risk involved in lending to your business.
If your business credit rating is low, there are things you can do to improve it. It's also useful to remember that credit ratings and scores are just one of the things lenders assess when building a picture of your business.
Over half of business owners said their business credit rating affected their ability to access certain goods and services in 2018, according to a report by the energy provider Utilita. Also, banks and traditional lenders typically only approve funding to businesses with no history of CCJs, non-payment of loans or late credit payments.
Fortunately, there are lots of alternative finance lenders out there today who take a more flexible approach to business finance eligibility. However, it’s still important to aim for the best credit score possible when you apply for finance as it can affect the interest rate you pay and lower the total cost of the loan you opt for.
When it comes to improving your business credit score, aim to do the following:
Of course, you need to know where you stand with your credit rating before you can start improving on it. Start by getting a credit report from the likes of Experian, CreditSafe or Equifax. The credit reporting company (CRA) will conduct a ‘soft check’ so it won’t affect your credit score.
Your score will be somewhere between 0 and 100 - the higher the better. When you apply for finance with a lender they will conduct a credit search that is described in the finance industry as a ‘hard search’. Bear in mind that having too many hard searches in a short space of time can negatively impact your score.
It’s a no brainer, but worth remembering. Missing or making late payments on invoices and credit cards can have an adverse effect on your credit rating. Be sure to fulfil your financial obligations on time; doing so can boost your score and give you a head start when you come to apply for credit.
Keep in mind that some credit reference agencies generate an overall credit score that combines both your business and personal credit score—this is known as a ‘blended’ score.
Establishing credit by taking out a business credit card or a business loan can help you to establish a credit history, demonstrating to CRAs that you can use credit in a responsible way. When taking out finance, it’s important to borrow within your means and meet your repayment obligations every month by paying in full and on time.
Be proactive by checking new supplier's and client’s credit situation too; after all, your cash flow could be negatively affected if they end up missing payments or delivering late, which could also have a knock on effect when it comes to your own business’ credit score.
Filing your business accounts promptly with Companies House can also boost your credit rating. Always aim to get your accounts in earlier than the deadline to be on the safe side.
This is the amount of credit you use from the overall amount that is available to you. Credit utilisation is one of the things CRAs factor in when determining your business credit score. For example, if you have a business credit card with a £5,000 monthly limit and usually use around £1,000 per month, your credit utilisation ratio is 20%.
You should aim to keep your credit utilisation to a minimum.
When you enquire about business finance with us we won’t perform a credit check, so it won’t affect your score. We will request your ‘permission to search’ in our T&Cs if you decide to apply with a specific lender though, as lenders usually run one as part of their application process.
If you need business credit now and your score is low, you might still be able to get a business loan. More and more lenders provide finance options for businesses with bad credit; it'll also depend on your circumstances and willingness to use differing forms of security.
Remember, there are also a handful of grants and government initiatives to help businesses survive and thrive during the coronavirus pandemic. See what funding your business might be eligible for today.
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