The Impact of Credit Scores on Small Business Financing
Your small business’s chances of getting financing are based on a few factors. Your business credit score is only one of many things considered, including a business plan and assets, but it is a very strong factor in the decision to provide your company with funding. If your credit score is too low, then it can prevent you from accessing more credit entirely. Low credit scores for businesses happen for a variety of reasons, but most often it’s because there isn’t enough credit history established. When that happens, the lender will typically review your business plan and sometimes your personal credit score to help weigh the decision.
The best thing you can do for your future loan determinations is increasing your credit score. It can be difficult to understand how to do this exactly, because the process by which business credit scores are calculated is opaque. There are some general moves that can raise your score consistently, though. If you have some credit options already, make a point of paying down their balances and paying on time. This will help increase your score automatically. You can also help increase it by requesting your vendors and utility suppliers report your payment activity. They might not always follow through, but when they do it will help you out.
Improving your personal credit score can help improve your prospects for loan approval too, but it won’t directly impact your business credit score under most circumstances. Improving your cash reserves will also help offset less stellar credit scores, but again, having more cash in reserve is not necessarily going to improve your score. Paying down credit line balances, however, will improve your score, so you need to carefully balance your reserves against your ability to pay down outstanding debt.
If you’re trying to rebuild credit after business cycle issues, then you’ll need to really focus on the management of any existing credit lines. Under those circumstances, repairing your credit history is the best way to rehabilitate your access to financing. It will free up funds in your existing credit accounts while lowering your debt-to-income ratio back to where you need it. You might also want to focus on alternative financing options like factoring that depend less on your credit and more on your customers’scores, so you can access the funding you need while you do this work.
Your business credit score is an important part of accessing financing, but it’s only a part. There are options available for companies with credit trouble, and you can always rehabilitate your score with the right effort.