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What is Business Credit?
What is Business Credit?
Business credit is a company’s ability to buy something now and pay for it later. By establishing a good business credit rating, you may make it easier to borrow money when your company needs it.
Business credit scores differ from consumer credit scores in some key ways:
Personal Credit Score Ranges: Personal FICO scores range between 300 to 850.
Business Credit Ranges: Business credit scores typically range between zero to 100. Paying on time to lenders and/or creditors is the best thing you can do to establish a good business credit score.
Access: Anyone can check a businesses’ credit scores, unlike consumer scores which are restricted to anyone with a “permissible purpose” under federal law.
Factors that determine business credit scores
Factors that determine business credit scores
The following factors may be used to calculate business credit scores: payment history, age of credit history, debt and debt usage, industry risk, and company size. Each scoring model is different, though, so some of these factors may not carry much weight, or may not be used at all.
By far, the most important factor when it comes to business credit scores is payment history: does your business pay its bills on time? Some credit scores are almost exclusively calculated based on payment history.
Why is Business Credit Important?
Why is Business Credit Important?
Having access to business credit is the lifeline for a small business. It enables you to obtain the capital you need to expand, cover day-to-day expenses, purchase inventory, hire additional staff, and allows you to conserve the cash on hand to cover your cost of doing business. Similar to personal credit, business credit also determines whether your company can be trusted by the way it manages money. Think of your business credit report as the financial reputation of your business.
Lenders and other creditors need a means of determining how well your business repays debts before they will approve you for financing. This is where business credit scores can come in. Higher scores indicate to creditors that your business is more likely to pay bills on time, thereby improving the odds that you can obtain financing. Lenders can check your company’s business credit reports to get more detailed information about your business’s financial history, and business credit scores serve as shorthand evaluations.
By taking the necessary steps to build business credit, the more financial opportunities your business will have. Banks, lenders, and suppliers rely on business credit reports to assess the creditworthiness of a company. With strong business credit, you create a safety net for your business so you should have no trouble gaining access to the business funding you need. Check your Business Credit Score on Nav.
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