An introduction to business credit score
What is a business credit score?
We tend to think of a credit score in terms of personal finance, but a business also has a credit score which reflects the financial position of a company and its level of financial risk.
There are several credit reporting companies and each lender will use its own methods and scoring system to determine your business credit score. Different lenders may use one credit reporting company or several to assess the level of risk in offering business finance.
Much like our own credit score, business credit scores range from 0 to 100, with 0 representing a high risk and 100 a low risk. It is estimated that almost two-thirds of business owners have never checked their business credit score.
Just as we would likely need to secure finance to help us with major purchases such as property or a vehicle, businesses can need finance to help them expand and grow. Lenders and investors will review your business credit score before offering funding on a commercial basis. This will include a business loan, the amount you can borrow and the interest rate which is charged on it, or an overdraft facility which may help your business’ cashflow.
Unlike a personal credit score, a business credit score is available for anyone to view and potential customers, suppliers and competitors can check it. Improving your business credit score may help you to win new contracts, secure tenders and organise other business support such as insurance and grants.
While it may be tempting to consider using personal finance to move your business forward, improving your business credit score can enable you to access commercial finance and keep the two areas separate.
How is a business credit score determined?
As with personal finance, our business’ financial performance will impact your business credit score. Paying bills promptly is a major factor in determining your business credit score, so ensure that you settle invoices, utility and tax bills on time .
Attentive and responsible financial management is an important indicator of your business’ conduct and a factor in determining your business credit score. Operate within your overdraft facility and pay careful attention to filing your business accounts in time and paying business taxes promptly as late payment fines will factor into your score.
Much like a personal credit score, every time you apply for credit – from setting up a mobile phone contract to applying for a loan – your business score is affected, so plan carefully and use commercial finance sensibly to help your company to expand and grow. Talk to Complete Commercial Finance on 01553 611619 to create a long-term plan that uses funding sensibly and effectively.
Can I check my business credit score?
Anyone can use a credit reporting company to check their business credit score, but they may have to pay to do so. For example, Experian offers annual access for £275 + VAT.
What’s a good business credit score?
Most lenders will look for a minimum business credit score of 75 to offer commercial finance to a company. However, there is a wide spectrum of lenders willing to take varying levels of risk and offering specialist lending, so call Complete Commercial Finance on 01553 611619 to speak with our expert team and discuss the options available to your business’ circumstances.
Can my personal credit score affect my business credit score?
If you are a sole trader, it is your personal credit score which will be considered by a lender. If you are a limited company, your business credit score will be considered. Although business and personal credit scores are separate things, some commercial finance products will look at both elements so it’s important to maintain good financial health in both areas.
If one area is stronger than the other it will help. Importantly, be open and honest about any credit issues you have faced personally when applying for a business loan or funding. Many lenders are willing to overlook bad credit history if there is a clear and resilient plan to move a business forwards more positively, but the key is to be upfront and save time by explaining a situation at the outset.
A poor credit rating is not always a barrier to lending and 94 per cent of leasing and hire purchase plans are approved after a credit check.
How to improve business credit score
Finding out your business credit score is a great first start as this gives you the ability to improve and expand the range of finance options available to you.
Much like your personal credit score, if you see any information that is incorrect, contact the credit rating agency to have this amended. Make sure your registered office is correct as this can often result in important paperwork not being received and being left unattended.
It might sound counterintuitive but using credit facilities such as an overdraft facility and a business credit card responsibly demonstrates that you are a ‘good’ risk to future lenders. Always ensure that you pay your credit card in full before the due date, and that you don’t exceed your overdraft facility.
Pay your bills on time, and keep your business banking and financial reporting in good order free failing to file your annual accounts with Companies House is a red flag that you are not on top of finances. Close any old accounts that are no longer required to show that you are in control of your company’s finances.
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