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Tips For Improving Your Small Business Credit Score

Published November 6th, 2017 by Servistree

Unless you plan to run your business from your garage or a spare bedroom, there is a good chance you will need to borrow some money to have capital. Unfortunately, a less than ideal credit rating can have a significant impact on your business’s ability to secure the loan it needs. 

While many are familiar with the idea of a personal credit score, small business owners may not realize that any company with an EIN (Employer Identification Number) will have a business credit score, too. 

Businesses that have yet to develop a strong credit rating, may find it difficult to secure loans from banks, or other traditional lenders. Also, if you fail to maintain and monitor a health credit rating, it may impede the ability to acquire acceptable interest rates in the future. This just results in more debt down the road. 

There is good news.

Some steps that will help any business improve their business credit rating can be found here, helping you to grow and succeed.

Make Timely Payments

The timeliness that your business pays its bills is a significant factor in determining your business credit rating. For maximum impact, ensure all invoices are paid prior to the actual due date. The more days a company pays in advance, the more positive impact it will have on the credit score of the business. 

Limit Overall Credit Usage

The amount of money owed to banks, or other lenders, is another factor that affects a business’s credit rating. A common metric used is the debt-to-equity ratio. This measures the business’s financial leverage in relation to the amount being used currently. 

Another important metric is the ‘credit utilization,’ which only deals with how much credit is available in relation to the total debt. Since high ratios coincide with lower credit ratings, small businesses should try to keep the use of credit below 30 percent. 

Use the Credit You Have

While keeping debt low is important, it does not mean you should avoid business credit altogether. Opening a few business credit accounts, such as loans or credit cards, can be beneficial for the credit rating – when used responsibly. 

It is important to keep in mind that not all credit providers will report to the use or payments, so it is a good idea to find companies that do. 

Don’t Close Your Old Accounts

It can be tempting to close your old, unused or unnecessary credit accounts, but this can be a huge blow to your credit rating. If you simply have to close an account, try to close the most recently opened ones, rather than older ones. This will minimize the impact to your business’s credit rating. 

Keep an Eye on Your Credit  Rating

Just like a personal credit rating, it is a good idea to keep tabs on  your business credit report. Take notice of changes and what is causing them.  Being aware of issues is the best way to prevent them from continuing to occur. 

For more information on business credit ratings and commercial  financial services designed specifically for small businesses like yours,  contact All Purpose Lenders today.

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