Your credit score can be a huge factor with regards to the funds that your business can gain from lenders. Credit reference agencies (CRA’s) can rate your business on favourable terms, and they’ll do so if you show them that your credit score is in a stable and positive position.
The higher your CRA financial health rating, the more likely you are to be offered finance for whatever purchase it if you want to make, whether its asset finance or other business cash flow solutions. So, what should you do to improve your business financial health?
The first step to take considering your credit score is checking out where you currently stand. You can quickly and accurately check your credit on a UK approved agency such as CreditSafe or Experian.
Business owners are often conscious that continually checking their credit score can damage their credit score. However, checking your score on a CRA is considered a ‘soft check’ as opposed to when business owners make actual credit applications which are considered a ‘hard check’. Too many hard checks can damage your score which lenders will be aware of.
After you’ve found out your score (a figure between 0-100) you’ll then know how much you may or may not need to do to improve your score to better qualify for business funds.
Surefire red flags for CRA’s is evidence of missed payments – so make sure that doesn’t happen. Ensuring that all your payments are organised and paid securely on time will put you in a great position for future applications for credit.
Another thing to consider with your payments that finance companies may take into account is that if your financial data on your business is limited, your personal payments outside your business may be used as an indicator of risk. So best to keep on top of those too.
Establishing credit doesn’t necessarily mean that you borrow more. But, without any supporting evidence of how you can manage your credit, CRA’s have nothing to go off. So, it’s a good idea to start a credit facility to get started such as borrowing by taking out a loan or by using a business credit card, making sure you’re borrowing within your means and securing payments on time each month.
The other side of the coin for business owners to bear in mind is who their clients are; if your suppliers and clients have a suspect history of being unreliable with their payments, which in turn affects your cash flow, then this can negatively affect your credit.
Filing accounts in good time with companies house is a great way to improve your credit score. The earlier this information can be submitted, the better, as CRA’s use it as another factor in accessing financial health. If it isn’t completed soon enough, this may mean that CRA’s cant access this information on time and have the right to believe you’re incapable of filing accounts on a schedule.
Another factor CRA’s use when figuring out credit score is credit utilisation ratio. This is the proportion of credit you use of the total amount that’s made available by a bank or lender. You should aim to keep this below 30% or even 20%.