The business environment is as uncertain as it has been for a long time, and you certainly don’t need any more setbacks. If you’ve ever decided to look for external funding, you’d know there can be a lot involved in the process. Whether you need a cash injection to fund growth or looking to trade your way through a time of disrupted cashflow, the last thing you want to be spending your productive time on is the complexities of securing finance.
When your business needs some additional cash, it’s essential to shop around for the best deal. When applying for loans, your business credit score is a crucial component in determining whether or not you fit the risk profile of a suitable customer for each lender. Knowing this, let’s take a more in-depth look at what a business credit rating is as well as tips to protect yours for when you need it most.
What is a business credit rating and why is it so important?
Just like you have a personal credit score, your business has one too. It’s an external measure used by financing companies to assess one aspect of the risk involved with lending to you. A better credit score is therefore looked upon favourably by lenders or suppliers as they can see your financial history is supportive of them being repaid as expected. A low credit score indicates a risk that they won’t, and so many lenders simply won’t deal with businesses below their minimum score cutoff.
“Even if you don’t need funding today, credit marks stay active on your file for a long time.”
There are many factors that influence a credit rating, such as paying your bills on time, making loan repayments promptly, using finance too little (or too frequently), as well as having a clean bank account and other financial records. If you haven’t already considered how these actions impact your business, you should. Even if you don’t need funding today, credit marks stay active on your rating for a long time. The damage you do today may impact your business’s access to finance later when it matters most.
Why applying for multiple loans is a bad idea
In Australia, your credit score is affected negatively each time a lender checks your rating. Every time you apply for a loan with a lender (prospective or not), your credit rating will be negatively affected, even if you don’t actually take the loan. If you make multiple applications concurrently, your credit score can be severely damaged, even if your financial position and profile didn’t actually change.
There are two ways loan applications can be recorded on your file – an ‘application’ or a ‘hard search’. The majority of lenders will perform a hard search as it provides the information they need to really assess the risks associated with your business. These searches can stay on your report for up to two years, and also show up when other lenders do the same search – ringing some financial alarm bells.
How to deal with a lender to preserve your credit score
With this in mind, you need to be smart when looking around for your next finance deal. Always make sure you’re engaging with a reputable lender that’s been around for a while, with a range of positive customer reviews. Carefully assess each loan you’re looking at, considering factors such as their costs, terms and any other limitations or fees. When you’ve decided on your favourite options, communicate with the prospective lender and ask if they will be conducting a credit check and if so, what type. Being smart and selective with your loan applications will help protect your business credit score now and into the future.
Use a business finance broker
This process might seem daunting; after all, you’re a business owner, not a finance expert. A great business finance broker will look after your funding needs from start to finish. Brokers will listen to your situation and leverage their experience to select the best option from their panel of trusted lenders. Furthermore, business finance brokers will be able to help you with the application, negotiating the deal on your behalf.
“Brokers can take the hard work out of your hands and ensure your credit score is not harmed in the loan application process.”
They’re available whenever you need them and can answer any of your questions along the way. This process takes the hard work out of your hands and critically, ensures your credit score is not harmed in the process. Developing a relationship with an excellent business finance broker is one of the best things you can do when it comes to securing your business’s financial future.
Capital Plus Finance is an experienced business finance broker that has your best interests at heart. The team at Capital Plus Finance will do everything we can to help you secure a suitable finance solution for your small business. Please give us a call anytime to find out more or to have an obligation-free chat about your business’s funding situation.