Why Your Business Credit Score Is Important and How to Improve It
Credit scores are important for everyone, but businesses have a particularly high stake in their creditworthiness. Businesses use credit to secure financing for purchases like capital equipment and vehicles, or for things like taking out a business loan. A good business credit score is important because it can impact the type of financing options you have as a business, how much interest you’ll pay on any outstanding loans and the length of time they will last. In this article, we explain what your business credit score is and the importance of keeping it high.
What Is a Business Credit Score?
A business credit score is a number determined by several factors that lenders use to determine the risk of lending money to a particular company. Credit scoring models are increasingly incorporating data from digital channels, but the core factors still apply to the business’s financial health, the amount of credit requested, and the company’s ability to repay the money. Lenders look at a multitude of factors to calculate the business credit score – both positive and negative factors that could impact the ability to repay the money in the event a loan is taken out. The parameters that make up your business credit score are determined by a variety of sources, including your business’s financial data, the amount of credit you borrow, and the amount you pay back. It’s important for you to understand that there are many companies who can help you understand and also solve this problem. Hiring the best Accountant in Essex is always a great choice for you.
Building a good credit score takes time
Building a good credit score takes time because it takes two to tango: lenders will not be as interested in the short-term impact of your credit score and will only consider your long-term ability to repay the money. You can expect to see a 5-10% improvement in your business credit score over the first year. After the first year, the impact will be less because lenders will have a better understanding of your business’s financial health and creditworthiness. Therefore, it’s important to focus on building a good business credit score over the long term.
Better borrowing rates for loans
A good business credit score can also impact your ability to get a loan. Lenders will consider your business credit score when looking at your financial data and determining if they will lend you money. This means you have a direct impact on your ability to borrow. A higher business credit score makes it more likely that a lender will be willing to offer you a loan. In fact, a Business Credit Score above 750 can increase your borrowing rate by as much as 27%.
Better credit accounts for stock
If you want to raise money for your business, you might consider selling shares. Your business credit score is important when investors decide if they will buy your shares: the higher the score, the more likely they are to invest. The impact of your business credit score on your ability to raise funds for your business can make the difference between getting funded or not.
A high business credit score is essential for your business’s success and will affect the type of financing you are able to secure, how much interest you will have to pay on any outstanding loans and the length of time they will last. To improve your business credit score, you will need to start keeping track of your credit score as you do with your bank balance. You can also try to minimise the amount of debt you are taking out to see if you can bring your business credit score back up.
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