Here's how to build your business credit score

Business credit score

Most growing businesses will find that they need to seek out financing at some point. Whether it's to help even out cashflow, or invest in growth, business loans are an effective way to boost your working capital, which can help your business to reach its full potential.

When you apply for a business loan, through a bank or alternative loan provider, your business credit record will be taken into account when assessing your application. To get the most choice when applying for a business loan, and to access the best rates available, you would need a very high business credit score, which doesn't come without a significant positive history of borrowing and repaying on time.

Does your company need a good business credit score to get a loan?

If your business credit rating is less than perfect, alternative lenders will still consider you for a loan. For example, they will take many factors into account, including your business plan, your support network and your experience, when assessing your loan application. Nevertheless, the better your credit score, the better your chances are of being accepted.

So why is your business credit score so important and what can you do to build your business credit score?

How do I check my business credit report?

If you’ve not taken out a business loan before, or would just like to find out where you stand in terms of creditworthiness, you can find out your business credit score for free. Just like a personal credit score, credit reference agencies offer free access to your business credit score, through a free trial offer. You can usually opt into a free trial, which can last as long as three months. Provided you cancel your subscription before the end of the period, you won’t be charged. However, after that, you may have to pay to access your updated credit score.

Credit reference agencies put together your credit file and score after taking a number of different factors into account. Firstly, they will look at your business’s financial accounting history. If you have submitted full accounts to Companies House each year, this will reflect well on your credit profile.

Then, they will assess whether you have taken out credit through your business before, whether you’ve applied and not been accepted and how much credit you have utilised in recent months and years.

If you have a history of taking out credit and repaying responsibly, your credit score will be much stronger than if you have taken out credit, which you’ve struggled to repay, or repaid late.

Are personal credit scores assessed when I apply for business credit?

Your personal credit rating will usually be considered if you are trying to apply for an unsecured business loan. Alternative lenders may still consider you for a loan, but they will want to see that you, as an individual, and a company director, can handle debt and repayments responsibly.

Is having a strong business credit score important?

Yes. Building a strong business credit score can be a helpful factor when seeing out finance to fund your business growth plans. Most businesses will need to find a source of finance to bring their plans for their business to life at some point, and during periods of rapid growth, taking out business finance can be a fundamental part of the process.

Businesses with strong credit ratings will have more choice when it comes to business finance options. They are also likely to find that the terms of their loan are more favourable, which means they may be able to take out larger loans and repay over a term that suits them. Interest rates may also be lower, as they present a lower risk to the lender.

How to build business credit scores

Building a business credit score is about taking out credit through your business and handling it responsibly. This means, making sure you can afford repayments before committing to loans, repaying on time and not overextending yourself when it comes to debt.

Here are a few simple ways to build your business credit score:

  • If you’ve not taken out business finance before, start now. You can start small with a business credit card or a small shorter-term loan. Keep up with repayments and pay on time EVERY TIME. If you have a business credit card, don’t max it out right away. Credit reference agencies will take credit utilisation levels into account when assessing your business’s creditworthiness, so keep your credit utilisation under control.

  • Don’t be put off by one or two refusals. There is an enormous range of business finance providers out there these days. Just because your bank has turned you down for a business loan, you still have options. If a bank rejects your application for business finance, you may think that taking out a loan isn’t the right thing to do for your business. This isn’t necessarily the case. If you come to an alternative provider, they'll look at the bigger picture and make a decision based on more than just your existing credit profile.

  • File full accounts, on time. Lenders like to see that you’re on top of your business accounts and this includes filing full accounts to Companies House on time. Some lenders see businesses that file their accounts late to be struggling financially.

  • Do everything you can to improve your cashflow. For example, if you are always chasing clients for payment of late invoices, don’t be afraid to get tougher with them, spending more time on emailing and phoning late payers. Make sure clear payment terms are included in your invoices and reduce the number of days they can take to pay an invoice if necessary.

To sum up, building a stronger business credit score is a good idea for any business owner. Using business finance when you don’t NEED it can be a great way to build up your credit score when you do need it. For example, taking on a small business loan and repaying promptly, or using a business credit card here and there for certain payments, and settling on time, can demonstrate that you are in control of your business’s finances.

Then, if you need to take out a larger loan in the future, to pay for new premises, major investment, or increased production, for example, you’ll be in a strong position to negotiate great terms and rates.

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