If you’re going to own a business in America, you must be ready to face almost as many challenges as the opportunities you are looking forward to.
One headache you must be prepared for is managing your business’ credit status. Like personal credit that tells a lot about an individual, business credit is more or less an indication of your company’s financial standing and capacity to manage debt.
Lenders scrutinize credit when underwriting a company for microbusiness loans, credit lines, or business credit cards.
Credit scores for businesses are based on several different factors and may differ considerably from one credit bureau to another on a scale of 101 to 992, or 1 to 100.
Experian, Dun & Bradstreet and Equifax are the three credit reporting bureaus for all business registered as legal entities. All the three bureaus allow you to retrieve and view your credit score online.
Here’s why business score matters to small businesses, how it impacts on your business, and how to improve it over time.
Why You Must Monitor Business Credit
Business scores, like personal credit histories determine whether you are eligible for affordable funding. A high credit score will win you the best terms when starting new accounts e.g., low interest credit cards for business, high-limit credit lines, or commercial loans with forgiving settlement terms.
In contrast, bad credit can be the reason your business does not get access to financing. Commercial lenders are often unwilling to do business with firms with no or poor business credit histories.
If you’re lucky to get funding with bad or low credit, expect skyhigh interest rates or difficult repayment terms in contrast to businesses with desirable credit score. Yet you can’t support your business if you can’t get your hands on emergency finances when you’re desperate for commercial funding.
How to Boost Up and Keep Good Business Credit
You must know how bureaus work out business scores to be good at improving and maintaining it. Here’s what they look at when determining your Business credit scores:
- Years in business
- Applied business credit and lines of credit used the last few months
- Any tax charges or collections against your company
- Your history of payment to credit accounts
In a nutshell, you can monitor and keep a good score by; (1)borrowing and (2) using credit lines wisely, (3)making timely repayments to lenders (if you settle in installments), (4) using your credit caps wisely and (5) following up with the three bureaus to ensure they update their records every time you clear your debt balances.
Final Takeaway
In the US, a desirable business score is like the key to most financial funding reserves. Excellent scores unlock doors to lender reservoirs and lead to business success, which are more than enough reasons to watch yours.