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Small Business Financing Options Benefit From a Positive Credit Score

By J Ferrer

|

December 12, 2023

Good credit helps you get good credit — that’s a fact, although not one commonly shared with small business leaders. According to Fundera’s 2023 Small Business Lending Statistics and Trends report, 36% of SMEs were denied small business financing options because of their credit score. According to experts writing for Forbes, part of this can be explained by a lack of awareness surrounding credit scores and how frequently and timeously they pay their bills. 

Knowing what your credit score is and how it works is the first step towards maintaining a healthy credit profile, which can have far-reaching positive effects on your access to small business financing options — especially if you are a business owner. 

The relationship between your personal and business credit scores 

Many growing businesses rely on personal credit to some capacity to access business financing, especially when the business credit profile is still under development. Eventually, once the personal credit score has been used to establish creditworthiness, lenders will begin to assess the business credit score by itself to evaluate how much credit can be extended.  

Until then, however, the personal credit profile of the business owner or director may still be assessed during the lending process. We wrote an article on how to check your score and maintain a positive credit profile that you can read here. Top takeaway tips? Keep your personal and business accounts separate and clear any accounts in arrears before applying for business finance. 

How maintaining a positive credit score opens up small business financing options 

A healthy credit profile does wonders for your business funding opportunities! Here are some of the most significant positive impacts that a healthy credit score has on your small business financing options: 

  • A healthy credit score makes it easier to get approved for credit, ensuring that you have full access to the credit your business needs at any time 
  • You can negotiate more favourable terms and more affordable funding on approved credit 
  • You can decrease your insurance premiums 
  • You can enjoy robust business relationships with your suppliers because your accounts are always settled on time, making it easier for you to negotiate different settlement terms if the occasion ever calls for it 

Don’t forget that, although a positive credit profile is always a good idea, alternative lenders will look at more information than just a credit score to determine credit terms. It’s one of the reasons that alternative lending is a popular option for growing businesses. 

The Three Ps of good credit for good small business financing options 

We’ve boiled down the best conventional wisdom about maintaining a positive credit score into the Three Ps: 

Be proactive 

Check your credit score regularly so that you can take early action to improve it if need be. You can use major credit bureaux’s like Experian and TransUnion that provide a free annual credit check, or a provider like ClearScore that allows basic access for free – that gets updated monthly. Take advantage of these tools and make an annual practice of checking your score and making an effort to correct false information, appeal wrongful charges, and alert the bureau of any recently closed accounts that they haven’t caught wind of yet. 

Be protective 

Many banking apps are equipped with alert systems that can help you keep track of potentially fraudulent activity, as well as keep tabs on your credit journey without having to check your credit score more than once a year. 

Furthermore, you can protect your cash flow from non-paying customers and suppliers by checking out their business credit reports before going into partnership with them. Sometimes, the extra mile is worth it. 

Be prudent 

Keep your personal and business banking accounts separate and don’t apply for too much credit at once — every time you give a prospective creditor permission to pull your credit report, it can impact your overall rating. Furthermore, applying for multiple lines of credit at once is not the most flattering look for your business. 

In the name of being prudent, it’s best to apply to the lender that will give you the fastest and most flexible access to a range of small business financing options: that would be Bridgement. 

It only takes two minutes to apply online and, within 24 hours, your growing business could have access to up to R5 million in funding. 

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