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The Top Benefits of Having a Good Business Credit Score
June 06, 2022
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The Top Benefits of Having a Good Business Credit Score

As a small business owner, it’s vital to establish a good credit score when starting a business. Without solid credit, you won’t be able to afford additional financing. This is crucial because you likely won’t have enough cash to afford all your expenses. This includes startup costs like equipment, advertising, inventory, and payroll.

If you want to apply for financing to afford necessary expenses, you’ll need a decent business credit score. When reviewing your loan or consumer credit application, most lenders will consider your credit score. Therefore, it’s imperative that you improve or maintain your score, depending on your current financial standing.

Even if you get approved for financing with a low score, you’ll likely receive worse terms than a business with a high score. This could hurt your business, as the funds may be too expensive, and it could take a long time to pay off your debt.

To understand the benefits of having a good business credit score, keep reading!

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What is Considered a Good Business Credit Score?

Before we review the importance of having a good business credit score, you should understand what a good credit score is.

Most business credit scores range from 0 to 100, but different credit bureaus have their own scoring models. Below, we’ll review the most popular business credit reporting agencies and what they consider to be a good business credit score:

  • Experian: When checking your business credit score from Experian, you’ll want to be in the 76-100 range, which is considered a low credit risk score. On the opposite end of the scale, 1-10 is regarded as a high-risk score. If your score is within this range, you’ll need to improve your score as soon as possible.
  • Equifax: Equifax’s scoring system works a little differently than other bureaus. They assign businesses three scores in their credit reports. These scores measure the following areas:
  1. Traditional Credit Risk Score: This ranges from 100 to 992 and gives an overview of your business’s credit history.
  2. Payment Index: This score, which ranges from 0 to 100, reflects your payment history. If you’ve paid bills on time and responsibly managed your finances, your score will be closer to 100.
  3. Business Failure Score: The final score included in Equifax’s Business Credit Reports rates your business based on the likelihood that you’ll go under or dissolve. This score ranges from 1,000 to 1,000.
  • FICO SBSS: For this credit index, you should aim to have a higher score instead of a lower score. The FICO SBSS scores range from 0 to 300, and you’ll want to have a score of at least 160 to apply for bank financing.
  • Dun & Bradstreet PAYDEX: Your PAYDEX Score will fall between 0-100, but you’ll want to score between 80 to 100, which is considered good. 0 to 49 is regarded as a bad rating, so you’ll need to make timely payments to improve it.

Find Out If You Qualify

Why Having a Good Business Credit Score Matters:

1. It’ll Be Easier to Qualify for a Loan

One of the most significant advantages of having excellent business credit is the ease of qualifying for a small business loan or line of credit.

Lenders are hesitant to lend money to businesses with poor credit history for fear that they won’t be able to make their payments on time or at all. As a business with a good credit score, you’ll likely be able to get a loan quickly and painlessly!

2. You’ll Receive Better Loan Terms

Typically, lenders will be more likely to offer favorable loan terms for businesses that have proven their creditworthiness.

For example, you could leverage your strong credit score to negotiate much lower interest rates and larger credit limits. Better terms can significantly benefit your business. For instance, lower interest rates will save your business thousands of dollars in interest payments!

3. It Protects Your Personal Finances

With business credit, you can separate your personal and business financial obligations. Your company debts will be reported on your small business’s credit reports, saving your personal credit rating from being impacted by any financial woes your business may face and vice versa.

Of course, it’s still important to review your personal credit report. When you apply for a loan, lenders may want to check your personal credit score and your business’s credit report.

4. You’ll Receive Better Terms from Suppliers

Once you’ve established excellent business credit, this will help you apply for business financing. It also bodes well for the credit terms provided by suppliers.

When it’s time to purchase additional equipment and inventory, consider purchasing on credit. If your suppliers can trust that your business is financially stable and capable of repaying debts promptly, they’ll be more comfortable in forgoing prepayment and allowing you to purchase on credit.

5. Get Access to Cash for Growth and Expansion

Even if your business can meet its current financial needs without credit, what happens when you decide to expand your operations?

For instance, taking out a loan for a business expansion project will allow you to expand your business more than initially imagined. Whether the expansion involves new facilities, equipment, or inventory, a loan can help you get started.

How Your Business Can Achieve a Strong Credit Score:

Now that you understand the importance of maintaining a good business credit score, take time to form healthy financial habits. Without monitoring your business’s finances, you won’t be able to improve or maintain your score.

  •  Pay Bills on Time: Make it a priority to pay bills in full and on-time. Credit bureaus will see that you’re responsibly managing your finances, reflecting your business’s credit score.
  • Reduce Existing Debt: It can be challenging, but you’ll need to focus on fulfilling your financial obligations to improve your score. That means paying off your business’s credit card debt, repaying your vendors, and eliminating any other outstanding balances.
  • Check Your Scores Frequently: Set a reminder on your phone or write a note in your planner to periodically check your credit. Reviewing your credit report will help you recognize any mistakes or issues.
  • Handle Tax Liens: It can seriously affect your credit if you’re issued a tax lien. Due to this, you should pay your tax lien in full as soon as possible. In addition, you may want to pursue subordination or a withdrawal, which can help you remove the tax lien from your public records.

Conclusion: Make Your Business Credit History a Priority

Overall, it’s evident that there are many benefits to having a solid business credit score. Whether you own a new business or a well-established operation, it’s crucial to build your that credit score so that you can pursue business success for years to come.

Editor’s Note: This post was updated for accuracy and comprehensiveness in June 2022.

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Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

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Fora Financial is a working capital provider to small business owners nationwide. In addition, the Fora Financial team provides educational information to the small business community through their blog, which covers topics such as business financing, marketing, technology, and much more. If you’d like to see a topic covered on the Fora Financial blog, or want to submit a guest post, please email us at [email protected].