Small Business Credit Score Ratings
Small business owners have the same responsibility as everyday consumers when it comes to credit score. Credit is necessary, and it does not come easy. Lenders take a great deal of time reviewing the credit report and credit score to decide if they will extend credit to consumers. There are many things about credit and the credit score that small business owners must know in order for a successful small business to thrive.
The Importance of a Good Credit Score
Small businesses depend on its clients to keep their businesses running smoothly. A good credit score is vital for business owners who want to receive credit from lenders. A good credit score is also important to suppliers, employees, venders, and competition.
The credit score of a small business is an indicator of the business’ credit history. If they pay their bills on time, lenders feel that they are capable of repaying their bills according to the terms. One of the drawbacks of a poor small business credit score is the interest rate. Businesses may depend on a line of credit to expand their business. Without the proper financing, it may be virtually impossible to move the business forward. Business owners depend of the approval of a loan in order to pay new employees or suppliers. A low credit score can hurt the small business by preventing customers from doing business with them.
Credit reporting agencies use an abundance of information to derive at a credit score. Example of information that they use include liens, bankruptcies, judgments, financial statements, receivable date from suppliers and venders, and public records. The reporting agencies may also accept information from the small business as information to put on the credit report and generate a credit score.
How to Improve a Small Business Credit Score
- Manage the line of credit. Small businesses must make sure that there is an effective spending plan in place before using the line of credit. For example, if business owners receive a $200,000 line of credit, they should not spend frivolously or they will risk maxing out their line of credit. No small business wants to be in this situation.
- Generate as much cash flow as possible. Lenders want to see that the business that they may potentially invest money into is capable of making enough money to manage the business and repay the loan. Lenders will not likely offer a line of credit to small businesses that are in the red.
- Check credit often. Small businesses must always know what information is on the credit report so that the credit score can stay positive. There could be negative information on the credit reports of small businesses that could prevent lenders, vendors, clients, and suppliers from working with the small business owners.
The credit score of a small business has a tremendous impact of its ability to receive credit and keep up with the competition of other small businesses. Small business owners must regularly view their credit report and credit score to make sure that their business is seen through a positive eye.