As the owner of a Small & Medium-sized Enterprise (SME), you channel all your resources into your organization. All business ideas and strategies are directed towards its growth into a larger setup, both in terms of revenue and market size. With limited resources at disposal, SMEs end up juggling a lot of things, often ignoring important stuff like managing their business credit score.
A business credit score is identical to a personal credit score. While evaluating an individual’s credit score, the credit reporting agency takes into consideration different factors such as one’s credit card statement, loan repayment, monthly EMI payments etc. Similar exercise is undertaken for businesses. In the calculation of your business credit score, the credit worthiness is evaluated on basis of different factors such as outstanding balance, trade history, payment records etc. SMEs should always aim to have a credit score more than 750, which enables easy loan procurement.
It is important for a SME to have a high business credit score. Let us understand why. After a business comes into existence and passes the initial survival test, growth is the next big challenge. As the business expands, the capital requirement also increases. One needs to secure one’s finances before the business spirals towards bankruptcy. This is where a good credit score comes into play.
Following these simple tips and taking strategic business decisions accordingly can not only make your credit score better, but also lead to better operational efficiencies:
- Ascertain your business’ credit score – It may seem obvious, but this is the first and foremost thing you should do. Find out your current business credit score. You can request for a credit report from any renowned rating agency such as CIBIL, CARE, EXPERIAN or ICRA for a nominal fee. Once you know what your current score is, you can begin understanding what may help you improve it.
- Bill repayment schedule – This is one of the easiest and most actionable step to increase your business credit score. Paying bills before the stipulated deadline is important to avail uninterrupted services and in turn improve your business credit score.
- Don’t close credit accounts – Businesses generally take the wrong decision of closing old credit accounts after they repay all the credit. As a business organization, one may have put in a lot of time and effort in the past to manage one’s account balance. However, all payments history is deleted as soon as you close your account. When you clear all debit balances in your account, you nullify data to back the ‘credibility’ which you have earned on that payment.
- Fix errors in business credit score report – It is again an easy way to improve your credit score. Your credit report may have inputted an incorrect company name or address. As an SME it is important to keep an eye on all such small details and get them fixed as soon as possible. Also, keep your credit report up to date.
- Avoid risky or hasty decisions – Avoid dealing with companies with a bad credit history as it will not only affect your business credit score but also may lead to a default on payments. One should always ensure that one is dealing with the right people who have a good credit history. Also, do not indulge in any risky financial proposition that may reflect badly on your credit report.
Other Pointers That May Help You Get Past Underwriters
- Balanced credit usage – Do not take a lot of debt. Always keep a tab on your utilized credit as % of available credit. 30% is a healthy target. Make this a weekly or a monthly routine.
- Duration of default – Making timely payments is a big feat. In case you are unable to meet your dues on time, try to minimize the duration of your defaults. Your default period influences your credit.
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