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Why Does Your Business's Credit Score Matter?

Business's Credit Score Matter

If you own a business and need to access financing to enable you to expand it or meet your running expenses, you'll need a good business credit score. This is critical in helping your business fulfill its day-to-day transactions and meet its short-term and long-term goals. Companies with poor credit scores experience challenges in achieving critical milestones to succeed.

Most financiers consider credit scores when checking business loan applications. Although businesses get loans with poor credit scores, they receive worse loan terms than those given to enterprises with high credit scores. Such terms make loans too expensive for businesses, keeping them in debt for a long time.

Defining Business Credit Score 

In very basic terms, a credit score is a rating that indicates whether your enterprise is a good candidate for a loan. The rating for the company credit scores ranges from 0 to 100. Although there are different credit scoring systems, companies with ratings of between 80 to 100 are considered to have good credit scores and are creditworthy.  This means they pay debts early or on time.

On the other hand, a score rating of less than 50 is considered poor. Enterprises with these credit ratings pay debts way past the due date and are regarded as high risk. If your business has a poor credit score, go to https://www.creditstrong.com/business-credit/ and other websites to find out what you need to do to build a better score.

Your business credit score has a significant impact on your business for various reasons, read below to find out why. 

1. Determines Loan Qualification 

The most significant benefit that your enterprise enjoys by having an excellent credit score is the ease of qualifying for business credit and loans. Business leaders are reluctant to loan cash to enterprises with poor credit scores.

Such businesses are viewed as risky because they pay debts late or don't pay them at all. If your enterprise has a good credit score, accessing business loans will be easier, faster, and painless. Enterprises with poor credit scores can leverage credit builder loans to improve their scores. Check out Digital Honey and other websites to learn more.  

2. Determines Loan Terms 

Lenders use a company's credit score to determine enterprises' loan terms. Often, enterprises with proven creditworthiness enjoy favorable terms compared to those that don't. For instance, if your business has an excellent credit score, you can use it to negotiate for a larger credit limit at a lower interest rate.

Such terms benefit your enterprise by giving you access to more credit and saving you the money you would otherwise have been paid as interest. Lenders charge high-interest rates on credit advanced to enterprises with low credit scores. They also offer low credit limits to such enterprises to cushion themselves against risks associated with poor business credit scores.

business credit rating

3. Affects Supplier Terms 

An excellent company credit score is not just valuable for business financing. It's also helpful in negotiating favorable credit terms with suppliers. Your business will need to purchase inventory or additional equipment for your business on credit from time to time.

A credit score is an essential standard that suppliers use to determine a company's creditworthiness before advancing another credit. If your suppliers establish that your company pays debts on time and is financially stable, they'll offer favorable terms and be comfortable advancing credit purchases.  On the other hand, suppliers would be unwilling to forego prepayment if your business has a poor credit score.  

4. Affects Business Growth

The company credit score matters because it affects how your enterprise grows. Although your enterprise may currently be meeting its financial obligations without credit, there might come a time when you want to expand operations and need additional capital.

Expansion may require you to put up new facilities, increase inventory levels, or acquire new equipment. Getting a business expansion loan will enable you to do this easily. At that time, your credit score will determine how much credit you can access and at what terms.

5. Separates Business And Personal Finances 

A company credit score allows you to separate enterprise obligations from personal ones. Debt obligations for your company are reported on that credit report. This ensures you will not affect your personal credit score by the financial challenges your enterprise may experience and vice versa.

Final Thoughts 

A credit score determines the creditworthiness of your enterprise. An excellent credit score means your business meets its debt obligations promptly, while a poor score means it doesn't do so.

The credit score determines how much credit your enterprise can access from lenders and suppliers and at what terms. All this has an impact on your business growth. You can improve your credit score by reducing current debt, paying debts on time, checking your credit report frequently, and paying any tax liens your business might have as soon as possible.

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