A good business credit score is essential for the success of any business enterprise, especially when seeking financial aid from banks and other lending institutions. Though you might not need to take a loan when starting your business, you might do it in the future as your business grows and expands. That’s why you need to build your credit score from the start.
This article walks you through all you need to know about business credit scores. You’re going to learn what it is, its benefits, and how you can build a good credit score. Read on to get enlightened.
What Is A Business Credit Score?
A credit score is the measure of a firm’s creditworthiness. In other words, it is a gauge to measure a business’s financial stability and ability to pay back loans.
Generally, business credit scores range from zero to 100. With that said, a firm with a credit score of zero can barely secure a loan from the lending institutions. On the other hand, a firm with a credit score of 100 can simply get loans. Such firms are said to have good credit scores.
What Are The Benefits Of A Good Business Credit Score?
There are many benefits of having a good business credit score. Some of these include:
- Easy Loan Approvals
One of the benefits of having a good business credit score is the ease of loan approval. It is possible because lenders don’t take too much to research your creditworthiness before awarding your loans.
If lenders find out that you’ve got a good credit rating, they develop confidence and trust in you and easily lend you money. So, if you want to get fast loan approvals, the best idea could be to build your credit score.
- Better Interest Rates
Another benefit of building a good business credit score is that it allows you to negotiate better loan repayment terms. One of these is lower interest rates.
Note that loans can attract a lot of financial costs to your business. So, if you’re not careful, it can hugely impact your profitability. However, you can minimize your finance cost by building a good credit score. A good credit score can allow you to negotiate for better loan terms and lower interest rates.
- Protects Your Personal Assets
Though you can take various loans, some of them can seriously impact your assets. It happens especially when you’re unable to pay for your loan, thus forcing your lenders to auction your private properties.
You can protect your assets by building a good business credit score. It is possible because, when you’ve got a good credit score, your lenders report your debts on your firm’s credit report, thus saving your assets.
- Better Trade-Credit
Another benefit of building a good credit score is that it allows you to get better credit terms. It is possible because your vendors can develop trust in you thus, providing favorable credit terms.
Better credit terms can include extending your credit period or giving you more goods on credit. So, if you want to develop trust with your suppliers and grow your business, it’d be a good idea to build a good business credit score.
How Can You Boost Your Business Credit Score?
There are many ways of building a good business score. Some of these include:
- Do Not Miss Payments
One of the major problems facing most businesses when building their credit score is late loan repayments. It happens when they fail to honor their loan repayment installments as due dates fall. You can overcome this by promptly submitting your monthly loan repayment amounts or according to the agreed loan repayment terms.
- Limit New Loan Applications
Another effective way to build a good credit score is to limit the new loan applications. It is because wanting too much is not beneficial for your credit score. When you apply for several loans at once, most lenders may not trust you, and you might not secure loans from them.
So, if you want to take several loans, consider doing it over o couple of months. It’s because applying for several loans at once or within the same month can negatively affect your credit scores.
A good credit score is a must for any business enterprise looking to finance its operations through loans. It’s a measure of creditworthiness and the ability of a firm to take a loan.
As you’ve seen above, there are many benefits of building a good credit score. For instance, it allows for easy loan approvals, better interest rates, helps protect personal assets, and better trade credits. However, to ensure you build a good business credit score, it’d be a good idea not to miss on your installment repayments. Besides, don’t apply for several loans at once or within a short period.