Small business owners work really hard to cope up with the daily necessities of their business to stay afloat and to fuel their ambitions of growth. While their efforts are earnest, the challenges they face are many, and at times, push them to neglect their business credit scores. As a result, when there is a sudden bulk order or an opportunity to expand, and the owner seeks a boost of funds in terms of a loan, the neglected bad credit score comes in their way.
And, you’re stuck!
Importance of A Good Credit Score
In simple terms, a credit score tells us about a company’s overall financial health. It is used by traditional creditors, and even Non-Banking Financial Companies(NBFC) assess your credit score to gauge your financial status and your ability to repay the loan. Lenders are more likely to approve your loan if your credit score is above their minimum requirements, and the higher the business credit score, the better the terms.
TransUnion CIBIL, Crisil, Equifax, Experian, CRIF High Mark are some of the credit bureaus that provide reliable credit information reports (CIR) to businesses in India. Each credit bureau follows its own measurement techniques, and a score above 700 generally indicates a good repayment track.
How to Improve Your Business Credit Score
Several factors that influence your business credit score are debt repayment history, liens, bankruptcies, credit utilisation, and more. A bad business credit score shows that you have a history of payment defaults. Increasing or establishing your creditworthiness cannot be done overnight.
However, if you regularly follow these simple steps, you are likely to be approved for your next loan application:
1. Don’t Mix Your Business and Personal Finances
Your business is a separate entity, and many small business owners make the mistake of mixing it up with their personal affairs. A quick solution to this is to have a separate, dedicated bank account for your business. This also makes tracking your transactions easier.
2. Pay Bills on Time
The importance of paying bills on time (even prior to due dates, if possible) cannot be overemphasized. Making late payments to your lenders and suppliers can dent your record, especially if the creditor chooses to report you. Any defaults or check bounces will lower your credit score. Similarly, prior payments are not only good for your rating but also improves your relationship with the lender.
3. Limit Credit Usage and Keep Credit Utilisation Ratio Low
While securing a loan or two may be necessary for your business growth, owing too much money to the banks or other lenders won’t be good for your credit report. If you are using a business credit card, try to keep down your credit utilisation ratio i.e. percentage used of your credit limit. The ideal limit is under 30%.
4. Build Good Credit with Vendors
It is important to establish good professional relationships with your vendors and suppliers so that they report on-time and early payments to the credit bureaus.
5. Check Your Credit Reports and Ensure Their Accuracy
It is very important to regularly monitor your business credit reports so that you have a fairly good idea of where you stand. This is also essential to find out if there are any inaccuracies on the part of the vendors and suppliers in reporting your repayments. It takes about a month to correct errors on the report, so it is advised to take actions against such cases as quickly as possible.
If you follow these five simple tips, your good credit score is likely to always keep you ahead in the race for a business loan. For expert guidance, an easy application process, and quick loan disbursal, contact Gromor Finance today!