Securing a business loan can be a major step toward expanding your company, purchasing new equipment, or covering operational costs. When you’re aiming for growth, a business loan can be a game-changer, but before applying, it’s essential to make sure your business credit score is in good shape. Just like personal credit scores, business credit scores play a massive role in determining whether you’ll get approved for a loan, the interest rate, and even the terms. So, if you’re considering that next big leap for your business, here’s everything you need to know about improving your business credit score.
Understanding Your Current Business Credit Score
Knowing your score is the foundation for improvement, and it’s easy to check through credit bureaus. Business credit scores typically range from 0 to 100, with 80 and above being considered good. Lenders use this score to assess your business’s creditworthiness, so understanding where you currently stand is key. Once you have a starting point, you can map out specific areas for improvement.
Tips to Improve Your Business Credit Score
If your business credit score isn’t on point, don’t worry, there are practical steps to help you improve it. Let’s explore some top tips for business credit improvement.
-
Pay Bills on Time
One of the easiest ways to improve your business credit is to pay bills on time. Late payments can hurt your score significantly, so stay on top of your due dates. Consider setting up automatic payments or reminders to make sure nothing slips through the cracks. Paying on time not only helps boost your credit score but also builds trust with suppliers and vendors.
-
Manage Credit Utilisation
This isn’t just for personal credit, it applies to businesses too. Your credit utilisation ratio is the amount of credit you’re using versus what’s available. Ideally, you want to keep your utilisation below 30%. For example, if you have a credit limit of £10,000, try to use no more than £3,000. High utilisation can signal financial strain, which can lower your credit score for a business loan application.
-
Maintain a Good Credit Mix
Having a mix of credit types, like a business credit card, trade credit with vendors, and perhaps even a small line of credit, can reflect positively on your score. A good credit mix shows lenders that your business can handle various credit forms responsibly, and it contributes to your business credit score.
-
Limit New Credit Applications
While building a good credit mix is helpful, don’t go overboard with applications. Each new credit inquiry can lower your score slightly, so only apply for credit when necessary. Multiple inquiries within a short period can indicate that you’re desperate for funds, which is a red flag for lenders. Sticking to a few well-chosen credit lines can help improve your credit without overextending.
-
Monitor Credit Regularly
Regularly checking your credit score ensures that no surprises sneak up on you. Errors can sometimes pop up, such as incorrect payment histories or accounts that don’t belong to you. By keeping an eye on your report, you can catch these issues early and dispute them if necessary. Routine monitoring not only helps with business credit improvement but also shows you where you’re making progress and areas that still need work.
The Impact of a Good Business Credit Score on Loan Applications
A strong credit score for business loan applications can be incredibly beneficial, especially if you’re looking for favourable loan terms. So, let’s take a look at what you can expect once you’ve improved your business credit score.
-
Better Loan Terms and Interest Rates
Lenders love borrowers with a strong track record, so a higher credit score often results in lower interest rates and better terms. Over time, this can save your business a significant amount in interest payments, leaving more room to invest in growth.
-
Higher Loan Amounts
With a good credit score, you’re more likely to qualify for higher loan amounts. This means you can take on bigger projects or even expand into new markets with more capital available. A better credit score shows lenders that you’re reliable, increasing their confidence to offer more funds.
-
Faster Approval Process
A strong credit score can help speed up the loan approval process. Lenders may be able to fast-track your application if they see a strong history of timely payments and low credit utilisation. When you’re ready to take the plunge on a business investment, a quick approval can make all the difference.
Creating a Financial Plan for Sustained Credit Improvement
Improving your credit score isn’t just about short-term wins, it’s about building lasting financial habits that keep your business credit in top shape. Start by creating a financial plan that includes a budget, regular bill payment schedules, and periodic credit monitoring. By consistently managing your finances, you can maintain a high credit score and continue to access better funding options.
Building a strong business credit score takes time and a bit of strategy, but the rewards are well worth the effort. With a healthy score, your business can access better loans, lower interest rates, and faster approvals, everything you need to fuel growth and achieve your business goals.
Get in touch with Business Finance House today to explore financing options that best suit your business needs.
