The Importance Of A Strong Business Credit Score

The importance of a strong Business Credit Score

The most critical part of any business venture, especially startups, has always been accessing capital. A new business will almost always begin operations at a loss, and it can take a while to actually achieve equilibrium, let alone profits.

As such, access to loans is sometimes perceived as the keystone upon which everything relies; losing access is almost certain to do on a business low on funds. However, how do you determine if you have access in the first place?

That is the sole purpose of the business credit score, the metric that you may find absolutely critical in the near future. Thus, it is time to start thinking about it and setting up a good score to serve as a foundation for your business.

Personal Score Vs Business Score

If you have ever requested a loan, then you are already familiar with the concept of a credit score. Simply put, it is a measurement of the likelihood of the lender being repaid and a representation of borrowing power.

There are some key differences between personal loans and business loans. Compared to individuals, businesses enjoy larger loans and lower interest rates. In addition, a positive rating affects things beyond loans.

Insurance providers often evaluate the credit scores of both owner and business in order to determine the appropriate insurance rates. Vendors and suppliers will also take the credit score of your business into account when determining the terms of payment for goods and services provided.

On the other hand, businesses have to take into consideration things like company size and the circumstances in the business’ particular field. If a particular industry is suffering, then the business delinquency risk will naturally be higher.

Additionally, you will have less flexibility when it comes to checking the credit score of your business. There are plenty of choices for monitoring your own personal credit scores, but you only have very few sources for attaining a free business credit score check.

Unlike an individual’s credit score, a business will have its credit score available to the public. This is in order for lenders and insurance providers to check and provide accurate ratings, as well as for the sake of transparency.

Calculating a credit score

The basic principle for calculating the borrowing power of a business is the ability to pay any debts accrued on time. In fact, payment history is the most important factor, and sometimes the only metric used to determine the credit score of a business.

For example, two businesses take loans for the same amount. One completes all payments on time, while the other one is overdue on a couple of installments. Even though they both will repay the entire debt within the deadline, the second one will inevitably have a lower score due to not being able to fulfill the smaller obligations.

Other factors may be considered, such as paying more than the necessary quota, paying the loan off early, the age of credit history available, and how any previous debt has been managed. Generally speaking, a business that has taken multiple loans in the past and has proven reliable will have an easier time than a startup taking on its first debt.

However, you may find that your own personal score could very well influence your business credit score as a business owner. If you have a record of reliability as an individual, it can serve as an extension of the credit history, even if not related.

Building your credit score

Saying that the best way to improve your credit score is to simply pay your debts in time is an oversimplification. Were it so simple, one would simply request a loan, not use any of it, and then repay it as given.

There are many different factors that can affect your business’ credit score. Even applying for too many loans will negatively impact your business credit reports, as it indicates you are having trouble staying afloat, and therefore have a higher business delinquency risk.

In fact, the actual best way to minimize the perceived business delinquency risk is to establish proper documentation of paying your debts on time. Even the mere act of paying your regular invoices can help you improve your credit. The problem is, not all bills will report towards your business credit rating.

If this is the case, all you need to do is find a way to ensure what you are already paying will report to your credit. You can do this by paying with business credit cards or opening new business accounts, ensuring that they do contribute to your business credit reports.

Finally, another important aspect is to manage your debt responsibly and always avoid maxing out credit lines whenever possible. This will not only hurt your score but may also leave you with no room to maneuver should additional expenses be necessary.

The most important benefit of a good credit score for your business is the fact that it can let you refinance debt more easily should the interest rates become more favorable. It can either let you pay less each month or allow you to pay off the full loan earlier.

Due date calendar with gold coins on top and a digital graph underneath

Start building credit from day one

As with most things in life, it is far easier to damage your borrowing power than it is to build it up. As such, it is far more advisable to take smaller risks and mitigate them consistently. The key for a startup is to begin establishing a reputation of reliability.

Businesses often find themselves at the mercy of a lender, in the sense that an approved loan can be the difference between surviving a rough period and going bankrupt. If your business can demonstrate the ability to always pay in full with no delays, you will have a significantly easier time securing funding

In turn, having access to these additional opportunities will allow your business to expand more comfortably. As a business owner, you will be relieved to always have capital available when performing that critical equipment upgrade, location remodeling or simply having extra working capital during a rough moment.

How to Check Your Business Credit Report and Score

Very few businesses hit the right note right at the start. For most businesses, it’s quite a struggle in the beginning. As a new venture, breaking even at the earliest is your priority, which is then followed by making profits. Along with other challenges, financing is a huge task for any business, because accessing capital is not as easy as it seems.

 

Loans are the most sought-after source of capital; but again, accessing loans gets difficult for a new business that’s low on funds. To apply for a loan, you first need to know whether you are eligible for it or not. For this, there’s a very simple concept of business credit score that you need to understand. Let’s walk you through everything you need to know about business credit score and how to check it:

What is a Business Credit Score?

The concept is very similar to that of a personal credit score. Just like a personal credit score helps gauge your ability to repay funds lent to you, a business credit score measures the ability of your business to repay the amount you borrow. Of course, there are differences which set personal credit scores apart from business credit scores. As a business, you are eligible for higher loan amounts at lower interest rates.

 

A good business credit score comes with advantages of its own. Apart from lenders and financial institutions, other stakeholders such as insurance providers, vendors, and suppliers, too, take credit score into consideration to determine terms and conditions of the trade.

 

While your personal credit score is confidential information, a business credit score is available to the public. This ensures transparency, as all involved stakeholders can have access to essential business information before they carry out business with you.

How to Build a Good Credit Score

While knowing what a good credit score is may be important, maintaining the same is even more crucial. You need to start building your credit score right from the beginning. Building the borrowing power of your business is a long process, but you can always start off by indulging in smaller, manageable risks and dealing with them on a consistent basis. Over time, this consistency is what adds to the credibility and reliability of your business.

 

Another way is to pay existing debts in time. This is the simplest way to ensure your credit score is not affected negatively. Documenting repayment of debts or payment of regular invoices in time is also important and helps maintain a score that is within a good business credit score range.

 

As you repay your liabilities (big or small) without any delay, you also start building your credit score simultaneously. With a good credit score, you can get loans approved faster, along with a whole range of other benefits. The credit score of your business assures your lenders that you can repay the borrowed money without delays. The benefits of a solid credit score are not limited only during the initial phases of your business, but also expand when you wish to expand. Making critical business decisions is a lot easier for you as a business owner when you know you have funds handy.

How to Check Business Credit Score?

There are many reliable software out there that you can use to extract the business credit score report. One of the most popular ones out there is the Trak credit software. Irrespective of the size of your business, you can rely on Trak to find out the exact credit score of your business. Along with this, Trak offers other features such as:

Reliable, Efficient and Quick System

With Trak, you can pull out the credit data of your business from credit bureaus. The process is simple, seamless, and doesn’t take a lot of time either.

Lender Waterfall

All you need to do is fill out one simple application and our proprietary matching engine will submit your application to the right issuer/lender for you.

User Friendly System

Trak has a super accessible, user-friendly interface, which makes it easy for you to use. Likewise, the modern design and colors ensure you have bright credit reports in a systematic format.

Friend or Foe Reports

Trak also allows you to extract credit reports of other stakeholders, including customers, suppliers, spartners, and even competitors. All you need to do is sign up on the platform and you can purchase these aggregated business credit reports from Trak. In less than 5 minutes, you can access and compile all the business information you require.

 

The Friend or Foe reports allow you to monitor the performance of your competitors and their position in the market. Trak makes this even easier as we provide clear, concise reports that present only the important, relevant, and value-adding information to you.

 

Cost Effective Pricing

At affordable prices, you not only get credit score details of your own business, but also that of others. Trak offers different features at reasonable prices, making it a go-to software for most small and medium sized enterprises.

Limitless Storage

With the Trak credit software, you can print your reports, export them to external storage devices, or simply store them in your Trak portal. You can access these stored reports as and when required. You don't have any restrictions on the number of reports you pull out and neither do you have to worry about running out of storage space on the Trak portal. The safety of your data is not compromised as the reports and all your data are secured by the built-in AES encryption technology.

Summing Up

Keeping track of your credit score with Trak is the best thing you can do for your business. The software is simple and intuitive, making it all the more accessible to use. By paying a nominal fee, if you can extract important information such as the credit score of your business, we’d say it’s totally worth every penny! So, what are you waiting for? Sign up today!


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