How to Improve Your Small Business Credit Score and Get the Best Loans

Businesses need money to run and become profitable. Most small businesses borrow money in the form of loans to take care of day-to-day expenses and expansion plans. However, much like individuals, small businesses also find it difficult to get approved for a loan if they do not have a good credit score. In this article, we look at what small businesses can do to improve their credit score and get easy access to credit.

1. Maintain a Clean Repayment History

If you are running a small business and you want to build a strong credit score, the first thing you must do is build a clean repayment record. A person's repayment history makes up almost 35% of their credit score. Thus, having a clean repayment history is crucial. Business owners must borrow cautiously and only what they can repay. Once they have availed themselves or their business of a loan, they must make a habit of clearing their loan EMI before their due date. They can set up autopayments and authorize their bank to make transfers on their behalf. Business owners must keep in mind that if they miss any EMI payments, they must clear the payment as soon as they can. This will protect their CIBIL score from going down.

2. Borrow Money and Pay It Without Making Any Mistakes

If you have a small business and you have never taken a loan for your business, you won't have a repayment history, which in turn, means your business' credit history will either be 0 or -1. When a business' credit history is only six months old and therefore, the credit information bureaus do not have much data to help them gauge the business' repayment capacity and attitude towards credit. In such a case, the business gets assigned a credit score of 0. If the business has no credit history at all, they are assigned a -1 credit score. In both these cases, a small business can avail of a small loan and pay it off without defaulting on loan payments or missing any EMIs. This will help them build a strong credit score.

3. Don't Use Your Credit Card or Avail of a Personal Loan to Help You Take Care of Your Business Expenses

Very often, business owners make the mistake of borrowing money not in the name of their business but by pledging personal assets. This is a mistake one should not make. One must have a separate business account and one must always avail themselves of a loan through this account when one needs money to take care of business expenses. If a person borrows money in their name, paying off the loan will help them build their credit score and not their business' credit score. Therefore, borrowers must keep their personal account and business account separate and they must always borrow under their business account if they wish to improve their business credit score.

Final Words

These are simple things to do but these are also things that can have a huge impact on a business' credit score. If you are running a business, make sure to build and maintain a strong credit score. Every business needs capital and more often than not, this capital comes in the form of loans. Therefore, businesses must maintain a strong credit score so that they can avail of capital as and when they need it.