If you are the proprietor of your own small business, it’s likely that you’ve heard the term business credit score before. But you might not know exactly why having a high business credit score is important, and in which situations a strong score is critical.
If you’re unsure of the importance of your business credit score, you’re not alone. According to Nav’s American Dream Gap Survey, some 72% of small business owners said they did not know where to find their business credit score, with 82% saying they did not know how to interpret their score.
Here’s what your business credit score is used for, why it matters for moving your business forward, and an explanation as to how your credit score can affect your business’ success.
Who’s Using Business Credit Scores to Make Decisions?
As you grow your business, you’ll likely be approaching banks, credit unions and other financial institutions — and perhaps even investors — to obtain financing for your company. With a business loan, business line of credit, or funding from investors, you can hire more employees, boost your inventory, open a new location, and expand your operations.
But even if your business is profitable, lenders want to know that they can trust that you’ll pay back the money you borrow, in a timely, consistent manner. Because they’re taking a risk by financing you, they’ll need to examine your creditworthiness before they take the leap and provide you with cash.
That means looking at your business credit score. This metric gives lenders a birds’-eye view of your business’ overall financial track records. Things like repeated late payments to vendors, liens, and bankruptcies will lower your score, whereas always paying your bills on time and not maxing out your credit each month will reflect positively on your score.
Banks, investors, and financial institutions will use your business credit score as a major factor in deciding whether to lend to you. Some vendors may even check out your business credit score before committing to working with your business.
Where Can I Find my Business Credit Score?
There are a number of major credit bureaus that calculate a credit score for your business, including Dun & Bradstreet, Experian, and Equifax. Some of these bureaus will charge you a fee in exchange for access to your full business credit report. You can also sign up for business credit monitoring services, which are offered by several providers, so that you can get real-time alerts to any changes in your score.
Strong, Easier Business Financing and Your Credit Score: What’s the Connection?
If you have a high credit score, you are far more likely to be approved for business financing, whether that comes in the form of a business line of credit, business credit card, business loan, or funding from investors.
An amazing credit score makes your life significantly easier; a poor credit score does the opposite. Although a spotty credit history isn’t necessarily a dealbreaker for all lenders, a lower score will probably result in less favorable terms for you. Think a business credit card with a higher APR, lower limit, and an increased likelihood of you needing to provide collateral upfront in order to obtain the card.
It’s critical to note that a very strong credit score doesn’t guarantee that you’ll be automatically approved for the funding you want. Depending on the amount that you’re seeking to borrow, the lender may want to secure collateral from your end, even if your credit score is amazing.
The reality is that the better your business credit score, the more funding you’ll be able to obtain from lenders, and the more advantageous your terms will be. You’ll enjoy lower interest rates on loans, a longer amount of time in which to pay back your loan, higher limits on your credit card or business line of credit, and more.
If you’re thinking of expanding your business, it’s critical that your credit score be as high as possible, so that you can obtain funding under the most favorable terms possible.
How to Get a Stellar Business Credit Score
There are several simple steps you can take today to strengthen your business credit score.
Try not to max out your available credit each month on your business line of credit or credit card. Having credit left over at the end of the billing period reflects positively on your score, whereas hitting your limit every few weeks will result in your score being lowered.
It’s of the utmost importance to check that your business purchases are being made in a sustainable way, that doesn’t involve guesswork or the possibility that your business expenses might be too much for you to cover at the end of the month. Paying your vendors and suppliers on time, each and every month, is one of the most important things you can do to ensure you have a great credit score.
It’s super important that your suppliers and vendors are reporting your payments to credit bureaus – if not, your history of fiscal responsibility won’t be noted in your score. This is so crucial, in fact, that if your vendors don’t report payments to these bodies, you should seek out other suppliers for your business needs.
Building and strengthening your business credit score will take time, so don’t get frustrated if you’re not seeing your score rise right away. But don’t get discouraged – within a few months of using less monthly credit and paying your suppliers on time, you should see an improvement in your score.
