Business Credit Score: Why you need it

Capital Markets CIO Outlook | Tuesday, July 16, 2019

Business owners have a lot of numbers, ratios, and metrics to worry about. One that often gets overlooked is business credit score―a number that characterizes how creditworthy a company is to lenders.

FREMONT, CA: A business credit score does not feature in many financial equations. On the surface, having a high or low score will not change a company's revenue, or make it more attractive to potential customers or employees. A healthy credit score in a deeper level, will not only give an organization access to better affordable financing options (from no-fee credit cards to long-term loans) but can also increase the value of the business. So, if the time comes to sell a business, a high business credit score can create more profit.

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The Value of Business Credit Score:

The personal credit score is associated with the social security number, which an individual receives at birth. When that individual files for employee identification number (a must requirement for most cases in small businesses), he or she begins to form a business credit history. The business credit score is a synopsis of an individual's banking history, which tells others (such as online lenders or banks) how likely a person can repay a loan on time.

A business credit score is based on many factors that include:

• Credit History: Deals with business credit utilization ratio, outstanding balances, and payment habits that detail a company's history.

• Demographic Details: The industry, size, and years in business are also considered in the score.

• Public Records: The score will take a hit if there is any incident of bankruptcy in credit history.

Commencement of a Great Business Credit Score:

Now that the importance of business credit score has been delivered, it is time to start focus on a few different tactics:

• Payment of bills on time.
• Maintenance of credit utilization ratio.
• Separation of personal and business expenses.
• Lease of finance equipment when possible.
• Use of a diverse mix of credit sources.
• Establishment of credit accounts with suppliers.

A business owner has to look after several functions, from overseeing the day-to-day operations to planning for the future. So, the vendor must never let the credit score fall. The payoff for maintaining a healthy credit score can be enormously valuable, both today and when it is time to sell the business.

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