Our Guide to Good Credit Business Loans
In this post, we’ll explain how to find business loans with good credit and how to leverage your good score to obtain the ideal financing.
What is a Good Business Credit Score?
A business score is a lot like your personal credit score; it can help business lenders determine how creditworthy you are.
Your business score will likely range from zero to 100 and the closer you are to 100, the better your score. To define a good business credit score, let’s review the leading business credit reporting agencies.
- Experian: An Experian business credit score in the 76 to 100 range is ideal. If your credit score meets this range, you’ll be considered a low risk candidate.
- Equifax: Equifax is unique in that it assigns three scores to each business. These scores measure traditional credit risk, payment index, and business failure. You’ll want a payment index score of as close to 100 as possible.
- Dun & Bradstreet PAYDEX: Dun & Bradstreet PAYDEXs are between 0 and 100. In their range, anything between 80 and 100 is considered a good credit score.
Good Credit Business Loans vs. Bad Credit Business Loans
To truly understand the benefits of good credit business loans, let’s discuss bad credit business loans. If you have bad credit, you may find it difficult to get approved for a small business loan. Lenders may deny your loan application because they believe you won’t be able to repay them.
If you do get approved for financing, you’re unlikely to lock in the rates and terms you desire. You might have to settle for a higher interest rate or shorter repayment period. Or, you may be on the hook for sky-high fees and miss out on perks that are often offered to those with a good business credit loan.
In addition, you may have to take out a secured business loan with bad credit. This means you’ll have to back your business loan with collateral such as:
- Real Estate
If you default on your business loan, the lender will seize the collateral. As a small business owner, losing any of this collateral can be devastating to your operations.
Are SBA Loans Good Credit Business Loans?
While there are many types of good credit business financing, SBA loans are among the most noteworthy. They’re backed by the Small Business Administration (SBA) and offer a long list of benefits. Most SBA loans come with lower down payment requirements than other loans.
They also feature competitive interest rates and longer repayment terms. In addition, SBA loans are guaranteed, meaning if you fail to repay the loan, the lender may recover a large percentage of the outstanding balance from the SBA. In most cases, the SBA only extends loans to borrowers with good or excellent credit.
However, it’s important to note that SBA loans aren’t right for everyone, and the only way to qualify for them is to prove that you’ve been declined for other traditional financing options.
To start, you may benefit from researching alternative lenders that specialize in working with small business owners. Most likely, you’ll have a better chance of getting approved for your preferred term loan amount due to your good credit score.
How to Achieve a Good Business Score
It takes time and effort to achieve a good business score. However, once you do, you’ll open the doors to good credit business financing. This can give you the freedom to land the rates, terms, and perks you desire.
It may also save you thousands of dollars over the life of your term. If you’re displeased with your current business credit score or would like to increase it, here are some tips to help you do so.
1. Pay Your Bills on Time
This one may be obvious but we have to mention it; pay your bills on time. If you make late payments or miss payments, it can bring down your credit history. To avoid this, we suggest enrolling in automatic payments or setting calendar reminders so that you never miss a payment.
2. Reduce Your Credit Utilization Ratio
Your credit utilization ratio is the amount of credit you use compared to the amount available. Credit reporting agencies will reward you with a higher credit score if your ratio is under 15%. To keep it low, pay off your balances, decrease your credit card spending, and pay your bills more than once a month.
3. Dispute Errors or Inaccuracies
Check your business credit report every so often. If you find a remark that’s wrong such as a n unpaid account that’s actually been paid, dispute it. A business credit reporting agency can look into the issue and resolve it if necessary.
3 Steps to Take to Find a Good Credit Business Loan
Once you’re pleased with your credit score and believe it falls in the “good” range, take the following steps to find the ideal loan option for your small business:
- Do Your Research: Use the internet to find lenders who offer good credit business loans. There are plenty of banks, credit unions, and online lenders that provide them so it’s a good idea to explore various business lenders.
- Compare Loans: Once you’ve found some business loans with good credit, compare them. Look at loan types, interest rates, repayment terms and fees.
- Read Reviews: After you narrow down to a few good credit business loans, check out reviews on the Better Business Bureau (BBB) and other websites. This can give you an idea on how reputable the lender is and what you can expect from the application and funding process.
Conclusion: Good Credit Business Financing Can Save You Money
Compared to bad credit loans, good credit business loans offer optimal interest rates and terms. They can provide you with the funds you need to cover just about any business expense you have. Plus, with additional cash flow, you can further invest in your small business’s future.
Before you sign on the dotted line and move forward with the good credit business financing application process, make sure you explore all your options and choose the ideal one for your unique situation.
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.