Intangible as it may be, your business credit score can have an enormous effect on your business. Every time you attempt to borrow from a bank, it will be taken into account and can sometimes be the deciding factor between getting the business credit you need or having to put your expansion plans on hold.
So how can you improve a marginal or poor business credit score and give yourself the edge? Here are ten simple steps.
1 Analyse your current business credit score.
There’s a widespread myth that asking to see your credit report somehow affects your score. It doesn’t, so feel free to request your report and study it carefully, paying particular attention to the negatives. You may find a few errors that can easily be corrected or some outdated information that can be removed. It’s even possible that your business has been the victim of a fraud or identity theft.
2 Pay off your outstanding loans.
Assuming you can afford it, the best way to boost your business credit score is to start paying down your debts. In particular, try to reduce the balance on your credit cards as this is seen as a particularly risky form of lending.
3 If your business credit score is good already, request an increase in your borrowing limits.
This may sound completely counterproductive, but actually makes perfect sense. Requesting a new credit line can actually enhance your score as it lowers the percentage of your available business credit in use. Similarly, if you have a positive history with a business credit card, do not close the account even if you no longer require it.
4 Make your payments on time.
Regularly missing repayments on your outstanding business credit is a sure sign of a business in trouble. It’s a huge red flag for any lender, and is almost guaranteed to make securing additional funding a nightmare.
5 Do more business with companies that report trades.
Some of your suppliers will report their trade information to a credit bureaux, whilst others will not. Doing business with those who report, and ensuring that they are paid on time and in full, can deliver a huge boost to your business credit score.
6 File your paperwork on time.
If you operate a limited company, the documents you file at Companies House will contribute to your business credit rating. Make sure you file regularly and update any changes, as many lenders will not do business with companies that have incorporated but not filed any accounts.
7 Be happy to provide information.
If your company is not limited, you are not legally required to register any financial information with Companies House. Suppliers may therefore ask you about your finances – you should be prepared to disclose details of interim accounts and trading figures. You may also wish to contact a credit reference agency proactively in order to improve your business credit score.
8 Improve your personal finances.
If lenders cannot find sufficient information on your company, they may turn their attention to your personal credit history. Treat any personal loans and credit cards with the same care as your business finances, and all should be well.
9 Give customers clear terms and don’t be afraid to chase for payment.
Before entering into any business relationship, you should set out clear terms and conditions regarding payment. Late payments will disrupt your cash flow and make you more likely to default on loan payments, so put in place a rigorous credit control procedure.
If you’re the situation where you are still struggling to gain credit then have a look at alternative lenders: they have completely different criteria, and may be happy to lend against the value of your premises, plant or equipment when a bank is more concerned with your cash projections.