A business credit score helps financial institutions to determine whether or not you’re a good candidate for debt financing. A high business credit score can improve your chances of obtaining a business loan—and likely, you’ll be able to receive much more favorable terms such as low-interest rates or increase the time of repayments. Alternatively, a low score can mean higher interest rates, and in some cases, even prevent you from being eligible to borrow.
Many startups or MSMEs during the initial phases think that they will grow exponentially without any financial aid. But the truth is exactly the opposite. To grow a firm one needs to have some initial investment but as the company grows, there is always a greater chance for the need for money. The money for various purposes such as creating separate departments for greater efficiency and coordination or to buy new equipment as the technology is changing every day. Now to give the financial aid the problems faced by lending institutions are about the reliability of that company, and the problem is solved by credit score.
Ways to improve credit score:-
Importance of business credit score:-
- Different personal and business credit scores will separate decrease the burden of liabilities. You may have excellent personal credit; you won’t want to put a loan for your business in your name for liability reasons, as you could become responsible for your business’ debt. There is always a chance that your business could hit hard times, and if your business cannot repay the loan, you don’t want that debt reflected on your own personal credit report. Not to mention in some extreme cases, the creditors could go after your personal assets if you filed the loan in your own name. Therefore it’s best to build business credit and then apply for business loans with your company’s credit report instead.
- The better your business credit the more financial opportunities your business will receive. If your business has a good credit history, lenders will be more likely to loan your business money. Not only will lenders trust you to repay them, but they will generally offer you lower interest rates than if your business had bad or no credit history. With access to loans, your business can borrow money to invest in a new product.
- Investors and partners will invest more. In the same way that lenders won’t mind engaging in business with your company, investors and partners may be more inclined to invest in your business as well. Your business credit score will prove that your company is reliable.
- Additionally, good credit creates a safety net for your business. You may not need extra money now, but what if sales drop next month? Can you still pay your company’s rent? Will you have enough money to cover your employee’s payroll? If your business has already built good credit, then your business should have no trouble borrowing money.
Business credit score Is in the range of 300-900 as per guidelines laid out by RBI. A score above 700 indicates a good repayment track on the credit availed by your business. Hence credit score matters for every company.
Author: Pratiush Kumar
Degree :- Pursuing Post Graduate Diploma in Global Business Operations from Shri Ram College of Commerce, B.Tech in Electrical Engineering from KIIT University