Business Credit Score: An Overview
Business credit scores are important, particularly for people who plan to consider financing for their business. Credit scores are the basis of lenders to determine if an individual or group is eligible for financing. Scores range from 0-100, the highest of which gives borrowers better chances. The scores are determined on different methods carried out by three agencies, namely Dun & Bradstreet, Equifax, and Experian.
Individuals are aware that financial management is essential. Having a good credit score can come in handy for people seeking aid in a home mortgage, loans and getting credit cards. In businesses, it is pretty much the same thing. They undergo the same kind of credit monitoring that an individual or small business would have to go through.
Hence, it is always important to keep in mind that business owners maintain a good credit score. It would boost the chances of entities when they need financial help. These are instances that occur when securing a lease, insurance or even a loan to help boost businesses. For those not aware, it may be best to figure out how a credit score works and how it can be checked.
This is the main objective of this report, to serve as a guide in business credit scores and credit reports. All questions about credit scores will be covered to educate people on the pros and cons of a business credit score. Compared to a personal business credit score, there are differences - especially in terms of calculations. This will be discussed as thoroughly as possible including figuring out how to efficiently check a group's business score through different reports.
Business Credit Scores Defined
First, it would be best to understand what a business credit score is. In general, it is an overview of how creditworthy you are. This would include the numerical measurement of the cash flow that keeps a business going.
After a proper assessment is made, the credit score will be a basis by lenders to figure out if a loan will be granted or not. This is the case when a person or group needs to apply for a lease, insurance policy or business financing.
It would be best to take note that a personal credit score is different from a business credit score. Though there are similarities, the point of reference for both is different.
For example, a personal credit score is tied to an individual's social security number. The case is different for a business since it would point to their employee identification numbers (EIN).
The two points of reference may befuddle most but will be explained moving forward.
The two credit scores are scaled differently.
Personal scores are ranged from 300-850 while a business is ranked from 1-100. The only notable similarity here is that if a score is higher, the more creditworthy an individual or business is.
Why Credit Scores Make a Big Difference
For some, credit scores maybe something new. But there will always come a point where a business will need to take out a loan. Applying is the easy part but the process of getting approved is the tricky one. There are various measures like credit investigations that will determine if an applicant is creditworthy or not.
This is where credit scores come out, something that may or may not be favorable.
The important thing to note here is that a credit score is needed if one wants a loan to be approved. Personal credit scores could be used as an example though there are differences that have already been pointed out. Hence, it all boils down to balancing revenue and expenses. Properly managing these should render a good credit score, lesser worries for those in need of financial aid.
Small businesses may have multiple investors who would invest assets or cash to help a business run. But at some point, most know that businesses do not usually immediately earn profits.
There will be a point where loans will enter the picture. Though there are assets and income to show, credit scores remain the best tool to determine if a loan will be granted by creditors.
The better credit standing a company has, the bigger chances they have of successfully securing a loan.
Credit scores are not solely based on assets and profits. It includes settling debts and payables paid promptly. If a lender sees that a borrower settles fees on time, they will feel more comfortable when it comes to the timely payment of fees. A credit score will also determine the right amount one can loan if not more than what is needed.
Another thing about good credit scores is that lending institutions could offer favorable terms. The frequency of payment could be relaxed, made flexible since a borrower has a good history of repaying debts.
Taking out a loan may not be applicable for some organizations, especially if they are surviving with minimal present assets. However, that does not mean that credit scores should be taken for granted. There is no telling what the future holds, some possibly beyond an organization's control. Some lenders could issue financial aid although they are limited. In these cases, it would be best to be careful. There will likely be a catch, a reason why most must read the fine print.