Do you know your business credit score?
Recent surveys by MYOB and OnDeck indicate that an alarming 93% of Australian businesses have no knowledge of their credit score. If you have not done a financial health check of your business recently, a good place to start is knowing its credit score.
In this article, we look at a few ways to build up a business credit score.
Business Credit Score Explained
The business credit score is an indication of the financial position of a business.
Banks and lenders use this score to assess the risk of lending funds to a business. Hence, it’s important to build a high business credit score. Let’s find out how.
Your business credit score is a numerical value derived from your business credit profile.
The business credit profile contains general information about your business, plus information about your business’s credit relationships and credit history.
The credit score can range from 1-850, with 850 being considered flawless. According to CreditorWatch, the average credit score of Australian businesses is approximately 700.
Your credit score is an indicator of trust and faith in the finances of your business.
If your business has a low credit score, it can mean other businesses refusing to trade with you for fear of not being paid back. That is why it’s important to build a strong business credit profile, which can unlock a plethora of financing options when combined with healthy business practices.
How To Build Your Business Credit Score
Here are some easy tips to help you build a superb credit profile for your business:
1. Make sure your business profile is accurate
Make sure all information in your business profile is accurate. The major credit bureaus in Australia, namely Illion and Equifax, offer a dispute resolution process to rectify any verifiable incorrect information present in your profile.
Check periodically with the credit bureaus to validate the information they have about your business.
2. Avoid using business and personal credit together
Startup business owners often tend to use their personal credit in the initial stages of starting a business. This doesn’t help build a solid business profile, as mixing personal and business credits can negatively impact both reports.
In fact, your business credit profile is what will help the business gain funding. Besides, as a business owner, if you use your personal credit for huge business expenses, it can negatively affect your personal credit score.
3. Establish trade accounts with your suppliers
Leveraging 30- or 60-day payment terms with suppliers is an ideal way to get started with the process of building a strong business credit profile.
In most situations, it is fairly easy to get credit. All you need to do is to establish one or two trade credit relationships in a year, and you’ll be able to build a strong business credit profile that will tackle your business financing needs down the road.
4. Maintain a positive relationship with suppliers
Once you’ve established trade relationships with your suppliers, you must ensure that you do not miss the payment terms as per the agreement. It is equally important to maintain a consistent flow of communication with the suppliers. This will ensure your trade relations stay positive, which can be helpful when the credit bureaus assess how creditworthy your business is.
5. Use credit responsibly as you need it
Your business credit profile is an indication of how you have used credit in the past. Hence, avoiding business credit altogether can make it difficult for lends to assess the financial health of your business. This could mean difficulty to access business financing. The rule of thumb here is to use credit responsibly, as you need it, as part of a strong business profile building strategy.
While it may be okay to not know your personal credit score, understanding its financial health is necessary when you’re a business owner. To invest in growth or cope during tough trading, your business credit score will come into question when loans are required.
Get off to a great start by first learning your business credit score and then, if required, use these tips to get it up to flawless, says Providior.