Small Business 101: How to Improve your Credit Rating

Small business owner checking his credit scoreThe credit score of your small business is obviously among the most crucial factors when looking for funding to fund, support, or expand your business. If your small business lacks a strong or high credit score, you’d be hard-pressed to find lenders or banks wiling to fund your business. Below are some ways to help you build and improve your small business’ credit rating.

Hold off on Using Credit

A huge factor that directly impacts your credit score is a debt owed to lenders or banks on credit. Lenders and banks use the debt-to-equity ratio metric to gauge your business’ financial leverage compared with how much credit it’s currently utilizing. Another vital parameter they use is credit utilization, which uses your available credit and outstanding debt. Put simply, if you get a high ratio on this metrics, your credit score is also on the low end. Preferably, your ratio for these should be kept at 30% max.

Spend Within Your Means

Operating a small business using readily available sources is vital to maintaining your credit rating. Make sure that you have sufficient money to cover operating expenses and paying bills on time, to communicate to lenders that your money management is on point. This would be particularly useful if you’re looking to apply for small business loans in the future, adds a prominent lender in Eagan.

Avoid Closing Out Credit Accounts

While you might be tempted to close credit accounts with a $0 balance, take note that closing out too many credit accounts could negatively impact your credit rating and even limit the credit amount you could get in the future.

Pay Your Bills On Time, Every Time

Otherwise, you could expect your rating to drop, not to mention the accumulation of late fees, which in turn would contribute to your debt. Also, try to reduce your current credit card balances or increase your limit to fix your debt-to-equity ratio.

Check Your Credit Rating Periodically

Checking your rating on a regular basis is a great way to avoid having errors or inaccuracies on your credit report that could result in a reduced credit rating.

As the owner of a small business, you should prioritize building your credit rating since it could help you get the financing you need. Aside from taking your pick of different small business loans, you’ll also be sure to get more favorable loan terms.