Whenever you are planning to run a business, you always think about its expansion and the profits you can make out of it. For expanding your business, it is really important to get good amount of money as loans. Now, any financial institution won’t spare you that money unless you are able to show them that you have Good Business Credit Score. This business credit score is a proof that you are able to manage your finances well and are able to repay the loan once taken, within the stipulated time. A business loan is a pretty hefty amount and it is really important for the bank to know if they will get it back with possible interest. A proper business based credit score will be the answer to such queries.
There are some key benefits of actually having a good business credit score. It is up to the owners to maintain that score and ensure it falls within the targeted sector.
What is considered as a good credit score for business?
Before you get to review why a proper business credit score is important for your firm, it is vital to understand what this good score actually is. Most of the company credit scores will range from 0 to 100. However, there are various business based credit bureaus available, which have their own scoring model. So, it is vital to review the popular bureaus first to understand what their definitions of a good business credit score is actually.
- The first one is Experian. Here, the range needs to be between 76 and 100, which is stated as a lower credit risk score. Then on the opposite side, 1 to 10 is stated to be a higher risk score. In case, you are enough to fall under this category, you might have to work hard to improve the score.
- For FICO SBSS, you might have to get a higher score under your field. This score will be ranging from 0 to 300 and you might have to score a bare minimum of 160 to apply for the banking finance.
- You have the PAYDEX score that matters a lot for some businesses, where the score will fall between 0 and 100. It is better to get the business between 80 and 100, which is pretty good. A bad rating will be from 0 to 49, when you might have to start working out on some payments right on time and get to improve it well.
- Equifax is yet another option, which will work a tad bit differently. The main purpose of this bureau is to assign businesses three different scores in the reports. The first one is the traditional form of credit risk score, which will range from 100 to 992 and provides an overview of the credit history of the business. The next score falls under payment index, ranging from 0 to 100 and reflecting the history. The third one is business failure score, which depends on the likelihood that the business will go or remain dissolved. Here, the score remains within 1000.
Basic benefits of maintaining a good credit score:
It is true that good credit forms to be the proper lifeline of your said business, no matter whichever industry you are in. It is a must for procuring financial help, while trying to launch a new business branch or trying to expand the existing one. But, that will prove to be just the beginning. There are some of the basic Benefits of Good Business Credit Score, which you cannot deny for sure.
- First of all, let’s just make this point clear that a proper business score can save you a great deal of money. Lenders will always present you with better interest rates, which are perfect for those businesses with great credit.
- Furthermore, you get the opportunity to procure the finest business credit, and you don’t need a personal guarantee for that. This section helps in reducing the current personal liability and will help in protecting the said assets you have.
- If you really want to stay ahead in this hardcore competitive field, nothing can beat the importance of a good business score. You can always pass the interest savings right onto the customers or can even try to maintain that larger profit margin, designed for yourself.
- With a proper business score, you can always make some decisions with utmost confidence. And the best part is that you get all the money that you need. This section always helps in reducing stress not just on your mental condition but also on your company.
So, you can easily state that a proper credit report and even a top-notch score are essential to get the financial aid you need, for running and growing your business successfully. If you do possess a great credit rating, or are just about to start it with your new business module, expert lenders are more than happy to work with the firms within your situation.
Create a separation as needed:
When your business starts to grow, you can easily find the number of benefits of you having a proper business credit. So, it is always within your best interest to create some separate financial accounts, designed for your business.
- Once you have a separate business account, it becomes easier to track down the expenses, designed for your business. There is no need for you to purchase any service or product, which will combine your personal or business expenses. So, it is mandatory to highlight items on receipt.
- Even though the credit score of your business is initially based on the current personal credit score, with time, the business will start to create its own score. It means that the credit rating that you own is not tied to the success or failure of your business directly.
Also Read: How to improve and maintain healthy Business Credit Score?
The business loans, rewards and more:
If you get the chance to improve the current business credit score, it means banks won’t think twice before lending you the money you need for purchasing that new business-centric equipment or expand the current business condition. Banks are further likely to check the financial statements, both under expenses and income.
The main purpose in here is to determine the number of money your business might afford. Most of the time, this amount remains higher if you are planning to get a loan as one individual. So, advantage of Good Business Credit Score are many, and you just need to keep a close watch on them.
- You will be amazed to see that most of the business based credit cards will present you with rewards like cash back on all the purchases made or the airline miles that you might use for the free flights. So, overall, it can be stated that this form of service will definitely help you save a great deal of money on everything that your business might need.
- If you are planning to make some purchases using only your business accounts through credit or debit cards or checks, you can always get the opportunity to track down expenses with ease. There’s no need to save receipts for the current tax time. All you can do is simply use copy of the present credit card statements for that financial year.
- If you are looking for extended warranty protection, then you probably have to get a check on your business score. Some banks are able to present extended warranty on items that you might have purchased with the said credit card. It helps you to purchase some necessary items without thinking that it might break right on you.
- If you do own a line of credit or business credit card, you get the chance to finance any purchase that you would like to make for business, and at a fairly lower interest rate. There are some business based credit cards available, which are offering 0% interest rate for a selective period of time.
Advanced benefits revolving around business credit scores:
Even though it is true that business credit cards will carry one annual fee, but that rate is pretty nominal. A number of valuable advantages for businesses will make these credit cards scores promising for the owners to maintain. Want to know how credit card score helps your business to expand? Checking out some of the advanced benefits mentioned below might help:
- Trying to get hands on the business credit cards and not quite misusing them, and even making the timely payments bang on time will always help boost the present credit rating of your business quickly. Remember to do businesses with suppliers, who will take time to report transactions to credit bureaus.
- You get the chance to enjoy higher credit limits for sure. These cards will carry credit limits, which make it easier for making some of the major forms of business purchases that you might not be able to make if you are trying to use personal cash or credit card.
- You can even get the opportunity to control all the expenses covered by an employee for your firm. Thanks to business credit card, now you can set some notable limits on some spending that the employees otherwise work on.
- It is mandatory for you to work on a separate form of business credit card, which ensures that your personal credit rating is not quite reflected within your transactions. Along with that, by having that separate form of credit card for smaller business, you don’t have to sort out the businesses and even personal transactions when the time comes for paying taxes.
- Business credit cards have their own shares of business perks for sure. These are mainly related to business and will also include discounts on current business based travel. There are discounts on shopping as well, in some of the selected supply outlets of the said business.
Proper use of business credit card will ensure that a good deal of your work gets covered financially without fail. Just ensure to maintain its score well, otherwise the same credit card will work in a downward moment for you.
Also Read: What is Government Performance and Credit Rating Scheme for MSME
Get qualified for a loan with ease:
If you possess an excellent business credit score, it is easier for you to quality for that smaller business loan, especially for MSME firms. Lenders will always hesitate to lend some bucks to businesses, which come with poorer credit history. They always fear that you won’t be able to make all the necessary payments on time and land up in huge debt. On the other hand, if you do have a business credit score which is high, then chances are more that your loan will get approved fast and in a quick manner.
Be prepared to get better loan terms:
Once you have successfully qualified for the loan, these lenders will opt for some of the favorable forms of loan terms, designed for good businesses, which have proved their high creditworthiness. If you have a perfect and great credit score, chances are high that you get to negotiate some of the lower interest rates. You will further enjoy some larger credit based limits too. So, these better terms are proven records of benefitting your business well. For example, the lower forms of interest rates will always help in saving your businesses money while dealing with the interest payments.
Easy cash flow for business expansion and growth:
Maintaining Business Credit Score is really important if you want to grow or expand your business with ease. Even when the business meets its present financial needs without any credit, what will your next step while trying to expand the current business centre? If you do have the liberty to get loan for expansion project, you get the opportunity to grow your business well and even larger than what you have expected. This expansion can be related to anything from new equipment purchase to facilities or even inventory help, all you need is a proper loan for that.
Easy ways to get a stronger credit score:
Once you know that a good credit score for your business is a necessity these days, it is time to learn how your businesses can achieve that stronger credit score. Some simple and easy steps are all that you need for it. You should know how to handle the tax liens with ease. If you have one tax lien in hand, it might create some serious repercussions on credit. So, you might need to pay the lien in full. Additionally, plan to get subordination, which helps in removing tax lien from the records.
It is easier to maintain a proper business credit score by just following basic points. Once you are able to do so, it’s not hard to expand your business for more profits.