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The Benefits of Having a Good Business Credit Score
August 15, 2019
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The Benefits of Having a Good Business Credit Score

As a small business owner, it’s vital to understand the importance of establishing a good credit score. This is especially crucial when starting a business, as you likely won’t have enough cash on-hand to fund all your business expenses. This includes costs like equipment, advertising, inventory, and payroll.

If you want to apply for financing to afford necessary expenses like the ones we mentioned, you’ll need a decent business credit score. Most lenders will consider your credit score when reviewing your application, so it’s imperative that you focus on improving or maintaining your score, depending on your current financial standing.

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

To gain an understanding of the top benefits of having a good business credit score, keep reading!

What is Considered a Good Business Credit Score?

Before we review why having a good business credit score is so important, you should understand what a good credit score is. Most business credit scores range from 0-100, but different business credit bureaus have their own scoring models. Below, we’ll review the most popular bureaus and what they consider to be a good score:

  • Experian: When reviewing 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 considered a high-risk score. If you fall in this range, you’ll need to work on improving 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, your score will be closer to 100.
  3. Business Failure Score: The final score that is 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’ll want to have a higher score. The FICO SBSS scores range from 0 to 300, and you’ll want to have a score of at least 160 in order to apply for bank financing.
  • Dun & Bradstreet PAYDEX: Your PAYDEX Score will fall between 0-100, but you’ll want to be between 80 to 100, which is considered good. 0 to 49 is a bad rating, so you’ll need to start making payments on-time to improve it.

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Why Having a Good Business Credit Score Matters:

1. It Will Be Easier to Qualify for a Loan

One of the biggest advantages of having excellent business credit is the ease in which you can qualify for a small business loan. 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 an exemplary credit score, you’ll likely be able to get a loan quickly and painlessly!

2. You’ll Receive Better Loan Terms

To expand on the last point, once you qualify for a loan, lenders will consider more favorable loan terms for businesses that have proven their creditworthiness. For example, you could leverage your great credit score to negotiate much lower interest rates and larger credit limits. Better terms can greatly 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 company’s credit reports, saving your personal credit rating from being impacted from any financial woes your business may face, and vice versa.

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

4. You’ll Get More Favorable Terms from Suppliers

Once you’ve established great business credit, not only will this help you when you seek loans from financial lenders, but 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 in a timely manner, 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 take your business to the next level? For instance, having the ability to take out a loan for a business expansion project will allow you to grow your business larger 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. By doing that, credit bureaus will see that you’re responsibly managing your finances, which will reflect in your business’s credit score.
  • Reduce Existing Debt: It can be challenging, but to improve your score, you’ll need to focus on fulfilling your financial obligations. That means paying off your business’s credit card debt, repaying your vendors, and getting rid of any other outstanding balances.
  • Check Your Scores Frequently: Set a reminder in 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: If you’re issued a tax lien, it can have serious repercussions on your credit. 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 financial record.

Conclusion: Make Your Business Credit History a Priority

Overall, it’s evident that there are many benefits to having a strong business credit score. Whether you own a new business or a well-established operation, it’s important 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 August 2019.

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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].