Most licensed moneylenders rely on business credit scores to determine whether or not they should give out loans to startups and established business owners. This is because business credit scores can let creditors, suppliers and licensed moneylenders assess whether your business is creditworthy before issuing out a loan.
When you start a business, having a good business credit score is essential. If you have a high business credit score, you will have a higher chance of qualifying for a loan – be it a consolidation loan or instant cash loan.
Here are 5 ways you can increase your business credit score, and in turn improve your eligibility for a loan.
1. Pay your invoices on time
Late payment of invoices can affect your business credit score negatively. Thus, the best way to improve your business credit score is to pay back your invoices to creditors and licensed moneylenders on time. In your business credit report, it will reflect that you do not have any outstanding payments, ensuring that your business credit score will increase. By increasing your business credit score, you will also directly improve your eligibility for a loan.
2. Pick a supplier that makes a report of all payments to credit agencies
Another thing that you should consider is the choice of supplier. Small business owners often suffer from incomplete business reports as their suppliers do not report payments as required to credit reporting agencies. If you make all of your payments on time without delay, then you should seek a supplier that reports to credit agencies and improve your business credit score.
3. Avoid depending on credit
When you start a business, a quick cash loan is often your only hope of financing your venture. However, it is essential to note that timely repayments for such loans are important in improving your credit score.
Relying too much on credit can also be detrimental to your fiscal health. You should strike an optimal balance between taking out a loan and meeting your current financial obligations, such as existing debt and payments.
You should seek to avoid situations where you will use up all of the credit that is loaned to you. Credit is vital in ensuring that your business is stable, so you should ensure that you do not use up all of the credit loaned to you.
4. Separate business history from personal history
In every aspect of your operation, you should separate personal credit from business credit. Doing so will minimize the financial impact each will have on the other. For instance, if you are going through financial challenges on a personal level, it should not interfere with your business credit report. If your business has problems, you should not let it affect your financial stability.
5. Register your new business with a business credit agency
Through a business credit agency, your business credit report can be maintained and built up, which can help you qualify for loans, score lower interest rates, as well as receive better terms for your loans. Once you have registered with a business credit agency, you can start building your business credit.
It is also vital to ensure that your business profile is in no way linked with your personal credit profile.
As a startup business owner, the thought of building a business credit score from scratch can be scary. This is because you may not know how to do so, or how to go about doing it. However, with a little research and the tips above, you will be able to improve your business credit score and in turn, improve your loan eligibility in the future.