Credit score represents an individual’s or business’s creditworthiness. It is a measure of how efficient a borrower is, when it comes to handling debt. If your business tends to fall behind on loan repayments frequently, the company’s credit ratings are bound to suffer.
Credit information companies or CICs, such as TransUnion CIBIL, keep track of this score for each credit active individual or company. Thus, every time your organisation fails to meet service EMIs for a business Loan, this credit score drops.
Importance Of Maintaining A Good Credit Score
A business can benefit significantly by maintaining an impressive rating. Listed below are some of the advantages that your business can experience by ensuring an exemplary credit record –
Ensures A Quick Borrowing Process
Lenders are always more open to extending lines of credit to companies having a reliable repayment history. If you are seeking funds, make sure that your company’s credit score score is 750 or above. Banks and other NBFCs determine the risk profile presented by a particular business, using this credit score. Thus, maintaining a high rating generally results in hassle-free loan approvals.
To ensure credibility with lenders, it is essential to always repay the company’s outstanding debt on time. If you use a business credit card, remember to service its bills in full, on or before the due date.
Boost Eligibility For Substantial Loan Amounts
Lenders severely restrict a business’s loan amount eligibility, if the company in question has poor credit scores. You may not be able to avail the desired amount due to imperfect repayment history and track record.
Contrarily, corporations with impressive credit ratings, enjoy the benefit of acquiring considerable sums as business finance from banks and other financial institutions. In general, lenders are more likely to offer big-ticket loans to your brand, if your business is deemed creditworthy.
Avail Finance At Lower Rates And For Considerable Tenure
Apart from determining the value of a business loan, your company’s creditworthiness also decides the interest charged on a particular advance. Entities deemed riskier, often need to service the considerable interest on their loans and vice versa. If your business’s credit scores exceed the minimum requirements, you stand a much better chance to acquire business finance at the most competitive terms.
Another major benefit of maintaining a dignified credit rating for your business is that lenders may allow you more time to repay the borrowed sum. Increasing the repayment tenure can reduce your company’s immediate financial liabilities, thereby freeing a portion of your capital for other purposes.
How To Improve Credit Rating?
If your company’s current credit score insufficient to avail financing, following the tips mentioned below can help you build a better credit history.
Repay All Dues On Time
As a business owner, you may be tempted to let some dues remain unpaid until the company’s finances improve. Nevertheless, doing so will hamper your creditworthiness, limiting your chances of availing loans or advances in the future.
To avoid such complications, always service your business’s existing debt on time and without fail. Use company credit cards sparingly if paying their monthly bills seems too troublesome.
Lower Credit Utilisation Ratio
Another sure way to improve credit score is to limit your credit utilisation to just around 30%. The credit utilisation ratio is the comparison of the amount of credit your company uses, against the total amount available.
A method of limiting credit utilisation would be to avail invoice discounting instead of a typical business loan. Since this financing is available against your company’s unpaid invoices, you limit the risks of defaulting on their repayment and also eliminate the chances of lowering the credit score.
Credit rating is of utmost importance for individuals and businesses alike. Company owners need to ensure its maintenance at all times, failing which they may find a dwindling number of creditors ready to extend funding to them.