Running a business requires balancing risks with returns, and sometimes you need to take certain hard decisions in terms of financing your business. In the world of small and medium enterprises (SMEs) especially, opting for a line of credit such as a business loan is a common approach taken by businessmen to increase their cash flow. In business, you will often spend a good deal on paying suppliers, dealing with customer requests and streamlining infrastructure, leaving little leeway for working capital. Or a sudden business expense may crop up, making day-to-day cash liquidity a challenge. It is, therefore, important that you maintain your business credit ratings at optimum, in the event that you have to turn to a business loan for financing.
What is Business Credit Worthiness?
Business credit worthiness is determined in the form of a business credit rating, assigned to your business by a centralised trade or credit agency. A credit agency generally grants a rating to a company after evaluating documents submitted by the applicant. The rating is issued after extensively evaluating the documents and interviewing your company’s management team.
In India, CIBIL maintains a CIBIL Company Credit Report or a CCR, which refers to a record of the credit history of your company. It is not exactly a credit rating but is derived from the information that is directly submitted by your bank. Both the CCR and credit score can determine whether or not you are eligible for an SME loan.
Why Build Business Credit?
Poor credit worthiness is understandably viewed by banks as a risky investment. If yours is a company with a low credit score, you have reduced chances of availing a business loan or an SME loan. In effect, your credit rating or credit report is a symbol of your company’s financial health. It is, therefore, important that you check your credit score by obtaining your credit report from a reputable institution. A number of credit reference agencies offer these services; else you can turn to CIBIL for their CCR. CIBIL’s Company Credit Report is often relied upon by loan providers to evaluate and address loan requests. Make it a point to check all your details, such as company size, business structure, balances of accounts, payment promptness, credit history length, risk levels of industry, credit utilisation and public records such as bankruptcies etc. Incorrect details can have a direct, adverse impact on your credit score. Hence it is crucial that you correct even the minutest of mistakes by reaching out to the authorities on time.
How to Build a Worthy Business Credit Rating
Building strong business credit worthiness is not an overnight task. It requires you to have a worthwhile credit history over a significant time period. You must pay close attention to the credit, debit and cash flows by periodically analysing your credit score.
Here is a concise guide to building a strong credit rating for your business:
Building positive business credit worthiness is a slow and steady process. Once you become credit-positive, it is important that you sustain the credit practices that helped you reach there. To know more about how to best utilise credit options, you can visit fintech lenders online who are introducing innovative ways to forward credit, especially to small businesses that are strapped for funds and cannot offer collateral in exchange for a loan.