Maintaining a positive cash flow is one of the biggest challenges of running a business. In the competitive market, maintaining a healthy business credit score is crucial for securing the finances of the business. A good business credit score makes it easy for businesses to qualify for loans and enjoy very favorable business interest rates.
Red Flags in Business Credit Report
Business owners should periodically monitor their business credit reports for errors and inaccuracies. Even minor mistakes in credit reports can impact a business’s rating. If there are any inaccuracies on the credit report, it should be reported to the credit bureau and rectified at the earliest. Some of the red flags to watch out for while reading the business credit report are,
- High utilization of credit
- Use of multiple credit accounts such as loans, credit cards, lines of credit, etc
- Loan defaults
- Bounced cheques
- Negative cashflows
If the business notices any of these red flags, then it should take appropriate remedial measures to improve its credit score. Also, irrespective of the business credit score, business owners should take care of their personal credit scores as well, before granting loans. They should ensure to keep their business and personal finances separate so that it is easier to manage the cash flow of the company. Maintaining appropriate business and personal credit scores helps in improving the chances of securing finances for businesses at the best rates possible.
Strategies for Improving and Maintaining a Positive Business Credit History
A strong personal and business credit history is a reflection of your company’s creditworthiness. It’s not just a number but a testament to your financial responsibility. Your business credit score is determined by various factors, such as the length of your credit history, credit utilization, and payment history. Achieving a favorable credit score not only makes it easier to borrow but also builds trust in the marketplace. Some working strategies to improve the credit history of the business are as follows.
Starting Early to Build A Positive Credit Score
Businesses should start early on building business credit. They should open a business bank account, obtain a business credit card, and ensure that their business is registered legally. It is important to support personal and business finances, which is a crucial step in the eyes of lenders and business bureaucrats.
Making Business Payments on Time
Making payments on time is not just a good practice; it’s a necessity for maintaining a good credit score. Late payments can significantly impact your business’s credit score, so it’s crucial to stay on top of your financial obligations. Consider automating payments and setting reminders to ensure you never miss a due date.
Utilization of Available Business Credits
Credit utilisation of the business, or the ratio between the current outstanding credit to the total available credit will play a significant role in building credit for the business. A higher rate of credit utilization can signal the lenders that the business is over-reliant on credit, thus harming the score.
Reviewing the Credit Reports Regularly
Businesses should regularly check their credit reports, as this might negatively affect their business credit score. Reviewing the business credit report regularly allows the business to identify and report inaccuracies appropriately.
Take Short-Term Business Loans
Businesses should ensure to take a short-term business loan and also ensure to repay their EMIs on time. This helps the business to boost its ailing credit score and ensure to repay the older loans.
Building and maintaining a strong personal and business credit history is an ongoing process that demands due diligence and small financial and strategic planning. By following credit management strategies, businesses can improve their chances of securing funding and business growth. Every step that the business takes toward improving its credit is a step taken toward achieving its business goals.