If you own a small business, you've probably thought about how to get funding to expand it. Understanding the big picture of business credit will be extremely beneficial to you. Understanding how small business funding works, how business credit scores are calculated, how they differ from personal credit scores, and the importance of establishing a good credit history will help you succeed as your business grows.
First things first, what is a credit score? The credit score is a statistical method for determining the likelihood of an individual repaying the they owe. Several credit bureaus will evaluate your credit history and provide lenders with a score. Every credit bureau has a unique evaluation system, and the calculation is based on a wide range of variables.
This article will explain why credit score is important for every business, how to check credit score, and why it is critical to establish good credit before applying for funding.
Why is Credit Score Important?
When you apply for a loan, your credit score is likely to be the first thing checked by the creditor. The procedure is the same when applying for a credit card, a loan, or a mortgage. Credit reports and credit scores are indicators that allow a financial institution to assess your ability to repay the debt on time. The credit score is thus a very important factor in determining the risk associated with an individual or an asset. So, if your credit score is low, you should work towards raising it.
Note that you will not be rejected outright if you do not meet the high standards of certain lenders, but the credit you receive will come with a with a higher interest rate than someone with a better credit score. As a result, the lower the credit score, the higher the interest rate, resulting in a higher monthly payment. In addition to credit scores, banks and other financial institutions may use other internal scoring mechanisms to determine an individual's creditworthiness.
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Factors Affecting Business Credit Score
- The number of years your company has been in operation.
- Lines of credit for businesses applied for in the last 9 months. These are referred to as credit inquiries.
- New business credit lines opened and the number of business credit lines used in the last six months. Cards, invoice accounts, loans, and leases are examples of such lines.
- Any tax liens or collection amounts in the last 7 years.
- Payment history indicating how frequently payments are made on time.
Tips to Ensure your Credit Score is Always High
- Take Out a Short-Term Business Loan and Repay It on Time
This may appear counterintuitive but bear with us. Taking out a short-term business loan and repaying it on time shows the credit bureau that you can manage credit responsibly. In addition, this can help you improve a bad credit score. However, before implementing this tip, make sure you have paid off any previous loans.
- Check Credit Score Periodically
As a small business owner, you should keep an eye on your company's credit report and check your credit score regularly. Keep an eye out for inaccuracies or errors. Even minor errors in your credit report, such as an incorrect mobile number, can have an impact on your company's rating. If you notice any errors or inaccuracies on your credit report, report them to the credit bureau as soon as possible so that they can be corrected.
Strengthen Your Credit Score with Kinara Capital
At Kinara Capital, we help businesses improve credit scores by offering business loans on easy and flexible terms. Repaying loans on time will help you maintain a high credit score. We at Kinara ensure that there are different ways to pay the EMI on time. Apart from ACH (automated clearing house)/NACH, Kinara has partnered with the Bharat Bill Pay network so that our customers can pay EMI through 400+ digital payment gateways such as Paytm, GPay, Phone Pe, and all the other major payment modes available. We also provide the option of paying in cash through Airtel Payments bank.
So, make sure you maintain a good credit score to expand your small business further!
- Credit Score
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