Importance of Credit Score for Business

A credit score is one of the most crucial tools lenders use when assessing a borrower’s creditworthiness, individual or business. And your credit score can impact your ability to access credit, the loan approval process and loan terms.

But what exactly is a business credit score? Well, it is a numerical rating that represents the creditworthiness of your business – based on your financial, borrowing and repayment history. And banks (or lenders) assessing your business creditworthiness often rely on an RBI-regulated third-party business credit score when approving your loan.

Why is credit score important for business?

Business credit score plays a crucial role in establishing your business creditworthiness, which is essential when accessing finance and capital for your business and growing your venture. Additionally, business credit score also influences how much money you can access, the terms of your loan and the interest rates.

Some of the key benefits you can gain with a good business credit score include:

  • Faster borrowing process: A high business credit score not only means better chances of loan approval but a smoother, hassle-free and quicker borrowing process as well. It establishes your business’s credibility in the eyes of lenders and boosts your application.
  • Access to higher loan amounts: You may need access to substantial credit for your business needs. A high credit score reinforces that you are a responsible borrower and gives you the power to negotiate a higher loan amount.
  • Competitive interest rates: You can attract competitive interest rates from lenders with a high business credit score. You can establish yourself as a low-risk borrower and negotiate lower interest rates.
  • Flexible loan tenure: With a good business credit score, you can negotiate longer loan tenure and a flexible repayment schedule to suit your cash flow.
  • Help in future loans: A good business score means a good credit history, which inevitably helps you when you apply for loans in the future and allows you to negotiate favourable loan terms.

Therefore, you must keep checking your business credit score periodically. Identifying discrepancies, monitoring red flags, avoiding identity fraud and understanding the quickly changing credit scores are some of the reasons to review your business credit score regularly and ensure your credit score remains high.

Business with no company credit score

The absence of a credit score typically indicates insufficient credit history to produce the score. This scenario can arise for newly established ventures or businesses in their early stages. While the absence of a company credit score may not necessarily have negative implications, it is not optimal. Lacking a reliable credit score, you may encounter difficulties securing loans, or lenders may reject your loan application without providing any justification.

But you can start building a business credit score from scratch for your new business with a few simple steps like incorporating your business to separate your personal and business credit score, opening a business bank account or borrowing from lenders that report to business credit bureaus can help you start building and maintaining your business credit score, simplifying access to credit for your venture.

So, start early and diligently work towards building and maintaining your business credit score. It may be a slow and steady process, but periodic credit checks can help you keep tabs on your business credit score, take necessary corrective actions if your business credit score is low and maintain a good credit score to access favourable loan terms.