You may have heard of personal credit before. Credit is essentially a report card that banks look at to determine how responsible you are with money. Similar to that, business credit is the exact same, just that it’s for your business. Generally, it is advised that a business owner keep this credit score on the higher side.
Why is business credit important?
Business credit will prove to be a crucial part of growing your business. Most new business owners will require loans when starting out. Banks will judge whether they should give you this based on your credit. This also covers business applications for insurance premium orders and companies considering whether you could be a potential business partner. It allows for banks, companies, creditors and lenders to evaluate your creditworthiness and determines the image of your business.
If you have a bad credit score, the banks may not loan you money, or will give you higher interest rates. Additionally, if you’re looking to loan money to a company, this credit will let you know whether they’re likely to pay it back on time.
What determines my business credit?
How long your business has been running
A new business may have a lower score because it can be deemed as less ‘stable’ than an older company which has been operating for a longer time. The older company most likely has more business connections and is presumably building on successful foundations.
Information about the business owner
If the business owner, or director, has a history of bankruptcies or other negative financing acts, this may impact it’s credit.
Public information about the company
Information concerning the company’s financial status which is readily available to the public also plays a part in determining the credit of your business. For example, defaulting on loans, and judgements made against the business.
Credit Inquiries
A credit inquiry is recorded on your credit report when a business applies for a credit product. Breaking this down, a credit product includes credit card applications or loans. A credit report includes all the credit inquiries from the past 2 years. It also notes how quickly you make your repayments back to the loaner. Furthermore, a rejected credit inquiry, where a creditor will not loan you money, will be entered into your report.
If you have a large number of credit inquiries in a short amount of time, it may lower your business’s credit and discourage banks from loaning you money. This is as they may assume that your applications were declined, as you were unable to make repayments by the due date. If you cannot make back a repayment, you will have made a credit default. This is listed on your credit report for the next 5 years.
In conclusion, it is important to know what your business credit score is. It provides valuable information, and lets business owners make informed decisions about where they want to venture to next. If you have any further questions about business credit, you can contact a business lawyer.
