What to do if your business credit score is low

A low business credit score makes your business look risky in the eyes of outsiders like lenders, vendors or insurance companies. This may keep your business from getting good financial terms. Your business credit score may be low due to a variety of factors. The most common reasons are the following:

• You have overdue debt on your credit card
• Your credit history shows delayed repayment of debt
• You have applied for too many loans unsuccessfully
• Your business has no credit history

It is important to build your business credit score as it is a measure of your firm’s financial strength and may be assessed by investors or venture capitalists in the future. A good score also helps your business get funding from banks or NBFCs during times of need. It may also be checked by vendors before giving you a lease for land or equipment.

Here are some ways to improve your business credit score

Don’t use personal finances for business

Using personal finances for business affects your personal credit score, apart from impacting your personal assets and security. It also doesn’t help you build your business credit history. Since the lack of a credit history automatically gives your business a low credit score, this isn’t an ideal way of building your firm’s financial standing. Even lenders and financial experts don’t recommend business owners use personal finances to fund their business. Consider the example of Manoj who wanted to start a sporting goods store. Since a new business usually takes at least four years to start turning a profit, his business plan projected expected costs and sales for the next five years. When he applied for a business loan to start his store, his lender gave him a loan and a current business account based on this 5-year forecast. This was done to keep him from dipping into his personal savings to finance his business needs. So, ensure that your business is sufficiently funded until it can support itself on its revenues.

Additional read: How to maintain a good business credit score: the key to smooth business financing

Pay your bills on time

If you are not careful about paying your pending bills within time, your creditor will report the same to CIBIL and your credit score will be marked down. The reason for the delay seldom matters. So, always plan your payments in advance to meet the deadlines. Manoj, from the example above, planned ahead to never miss his repayment date. When his sporting goods store needed funds for expansion, he applied for a Flexi business loan instead of a term loan. This way, his EMIs consisted only of the interest component, which lowered his repayment burden. He would make part prepayments when he received revenue from sales to further decrease his EMIs. He also had a revenue plan that allowed him to repay his principal at the end of the tenor. He had chosen this tenor based on when he knew his revenues would be sufficient to repay the loan in full, which was at the end of the summer season, when he experienced high sales. This way, Manoj was able to ensure that his business credit history was built and his score was boosted.

Additional read: Where to check your CIBIL score?

Establish business credit history by opening a business bank account and taking a small business loan

If your business doesn’t have any credit history to speak of, the ideal way to start building it is by taking a small business loan. Ensure that your revenues are enough to repay this loan without defaulting. This will ensure that your track record is registered by CIBIL. The next time you need urgent finances, your lender will see your business credit score and approve you for a loan at a low interest.

Following these steps will slowly push your business credit score up, and help your business maintain a strong financial history. This will come in handy when you need external sources of funding.

Additional Read: Get Business Loan of Rs. 20 Lakh