When you open a business, it immediately starts writing its credit history, based on the loans you borrow and the transactions you make. This information is gathered and managed by credit bureaus, who use it to generate reports and issue credit scores.
Business credit scores span from 0 to 100, and a score of 75 is considered excellent. Lending institutions will rely on your score to determine if you are legible for a loan, as well as how much to lend your business.
Proper management of credit is, therefore, essential for the future of your enterprise. In addition to higher chances of loan approval, businesses with good credit scores have an easier time accessing other financial services, such as bookkeeping and payment processing.
The following are a few steps you can take to maintain a favorable credit score for your business.
- Does your business already have a credit file?
SME owners should first determine whether they have a history file with a credit reporting agency, such as D&B or Equifax. You can do this by calling customer support or visiting their websites. If you have an existing file, review it and understand the information it contains. You can also add or modify the file’s content to ensure it has complete and accurate information.
On the other hand, if you don’t have a file you should establish one right away by meeting expenses in the business’ name instead of your own and using a business bank account to pay the bills and accept payments.
- Pay loans and bills in time
Credit ratings are based on several factors, but the primary influence on your score will be your lending record. To maintain a healthy credit history, ensure you pay bills on time, and fully meet the demands of your loan agreements. Only borrow when you need to, and use any line of credit appropriately.
- Keep your credit file updated
Analysts suggest that a third of new businesses experience a steady credit score decline within the first three months. By keeping an eye on your credit file and ensuring the information it has is current and accurate, you will be up to date with any change in your score and therefore make more informed business decisions.
When not well managed, your credit history could be the source of many problems. Not only will it be nearly impossible to get a loan, but you’ll likely miss out on the many discounts suppliers give to credit-stable businesses.
That said, if your enterprise already has a dangerously low rating, all hope is not lost. You may not get the funds you need from a bank, but an independent provider like First American Merchant can offer a lifeline in the form of a cash advance. And once you get back on your feet, ambition to employ sound credit management policies.