Businesses face a frustrating and challenging problem when they first incorporate: funding. You can have a billion-dollar idea, but you won’t be able to get a loan with poor or bad credit. It’s important to learn how to build business credit to receive loans to grow your business.
In 2019, 43% of businesses sought new financing.
Businesses that didn’t have sufficient credit either:
- Were denied the loans they needed
- Are paying high-interest rates on their loans
We’re going to show you how to get business funding fast by building your credit. If your business has solid financials and good credit, your chances of getting funding increase.
How to Check Your Business Credit Score
First and foremost, what’s your business’s credit score? If you don’t know, you need to check it to see where your score is rated. A few of the key places to check the score are:
You can check your score and also find monitoring services. These monitoring services will alert you when any changes occur on your report. If you’re concerned about fraud or want to keep on top of your business’s credit, monitoring can help.
Credit Scores and Risks
Once you have your score, it’s essential to know what it means. Lenders deal with risk tolerance when offering loans or lines of credit. For example, it will be more challenging to get a loan if you’re a high-risk borrower with poor credit. You may have to guarantee the loan personally. In addition, interest rates are substantially higher for businesses with bad credit.
A borrower with good credit will have an easier time getting a loan at a reasonable rate.
Business credit scores are different from a personal credit score and use a 1 to 100 score. Let’s look at what these scores mean:
- Low-risk borrowers have an 80 to 100 credit score
- Medium risk borrowers have a 59 to 79 credit score
- High-risk borrowers have a 49 and below credit score
Risk level categories can also have in-between rankings, such as low-to-medium risk. Your business’s goal should be to raise your score to the 80 to 100 range to receive funding fast and lower your potential interest rates.
Your score is comprised of numerous factors, much like a personal credit score, that includes:
- Payment habits
- Payment trends
Lenders will also consider the size of your business and how long it has been in operation. If your company has a steady cash flow and a long growth history, you may have a better chance of getting a loan.