The first and foremost thing about availing business loan is having a good credit score. But the fact is that much of the population is unaware of their credit score for a business loan and its importance in financial markets. As a business owner, you may have financial hurdles. You may face challenges in running day-to-day operations and paying employees. In such cases, you always think of taking a business loan. But have you ever thought about how your credit score will impact your loan approval? If not, we’re here to help you learn more about credit scores and ways to maintain a credit score for a business loan. What is a Credit Score?
In simple terms, a credit score can be defined as a three-digit number that ranges from 300 to 900. Nine hundred being the highest or the perfect score and 300 being the lowest. Having a good score makes your business reliable in the eyes of a lender. If your business has a low credit score, you may face difficulties in getting a business loan. So, how is credit score provided to individuals and companies? Well, a credit score is given based on your repayment of past loans.
When you repay your loans on time, your credit score increases, and your chances of getting the loans in the future. If you have a reliable credit score, getting an SME loan becomes more effortless. So, it’s in your interest that you maintain a good credit score to make it smooth and maybe less expensive to obtain a small business loan whenever needed. Lenders primarily consider businesses’ credit scores to determine whether the loan should be sanctioned or not and decide the offer to be made to applicants.
This article has highlighted some ways to maintain a good credit score for a business loan.
Your repayments play an essential role in your credit score. Credit bureaus contain all the financial information about the loans you have availed of in the past. If you repay your dues before the due date, your credit score will increase. On the other hand, the credit score will decrease when you fail to repay on time. The last payments also impact the credit scores of businesses and individuals. If you want to avail more loans in the future, make sure to repay the loans on time and avoid being on the defaulters’ list.
We previously discussed how important it is for a business owner to check on the credit score for a business loan. The credit bureaus can check any reports; one cannot track or be sure about any of them. As a business owner, you also must make sure that all your reports reflect your business’s correct information to get a good score during the assessment. Information such as bank statements, balance sheets, no. of years of operation, size of the company, etc., should be regularly updated. It is suggested that you monitor your scores by different bureaus to take action in time.
Your complete efforts will go wasted if your payment details are not reported to credit bureaus. Partner with the bureaus who do this activity. Before you enter into an agreement with your lender or creditor, make sure they report your payment history and habits to the credit bureaus.
The utilization of the available credit also affects the assessment of the credit score. Over utilization presents an impression that your business is facing difficulty in profit-making. The higher the utilization of credit goes, the lower your score will go. Limiting credit applications can also help.
It is recommended to keep business and personal credit separate, but repayments for both are to be kept clean. As the company is in its initial stage, the company may have less or no credit history; in that case, loans are mostly sanctioned on your personal credit score.
Obtaining a credit score will take time; you will have to work for it by keeping your finances under consideration. Once you achieve a decent score, it is essential to maintain it as your future credibility is dependent on it. In the initial stage of keeping a credit score for your business, things may seem difficult. With a healthy credit score, you can make your business achieve heights.