How Business Credit Impacts Business Funding

When it comes to business funding, your business credit score plays a big role. Lenders will often look at your credit score as a way to gauge your business’ financial health and ability to repay loans.

A strong credit score can give you access to more favorable loan terms, while a poor credit score could mean you’ll have to pay higher interest rates or be denied financing altogether.

That’s why it’s important to understand how business credit works and what steps you can take to build a strong credit history for your business. Here’s a look at everything you need to know about business credit and its impact on business funding.

What Is Business Credit?

Business credit is similar to personal credit in that it is a way for lenders to assess your creditworthiness. However, business credit is based solely on your business’ financial history. This includes things like payment history, credit usage, and credit mix.

Unlike personal credit, business credit is not impacted by your personal financial history. That means your personal credit score will not be a factor in determining your business credit score.

How Is Business Credit Score Calculated?

There are a few different ways to calculate a business credit score. The most common method is known as the FICO SBSS score. This score ranges from 0-300 and is based on information from the Dun & Bradstreet database.

To calculate your score, lenders will look at things like your payment history, outstanding debt, and credit utilization.

They will then use this information to assign you a risk score, which will be used to determine your interest rates and loan terms.

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What Is A Good Business Credit Score?

A good business credit score will vary depending on the type of financing you’re seeking. For example, if you’re applying for a small business loan, you’ll need a score of 640 or higher to qualify for the best interest rates.

However, if you’re looking for a business line of credit, you may be able to qualify with a score as low as 600.

Generally speaking, the higher your score, the better loan terms you’ll be able to qualify for. That’s why it’s important to work on building a strong credit history for your business.

How To Build Good Business Credit

There are a few different things you can do to build good business credit. First, make sure you always pay your bills on time.

This includes things like rent, utilities, and loan payments. Lenders will look at your payment history as a way to gauge your ability to repay loans.

Second, keep your credit utilization low. This is the amount of debt you’re carrying compared to your available credit limit.

For example, if you have a credit limit of $10,000 and you’re carrying a balance of $5,000, your credit utilization would be 50%.

It’s generally best to keep your credit utilization below 30%, although some lenders may require a lower percentage.

Finally, diversify your credit mix. This refers to the different types of credit accounts you have. For example, having both revolving and installment accounts can help improve your score. Lenders like to see that you can manage different types of debt responsibly.

By following these tips, you can build good business credit and access more favorable loan terms in the future.

The Bottom Line

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Business credit plays a big role in business funding. Lenders will often look at your credit score as a way to gauge your business’ financial health and ability to repay loans.

A strong credit score can give you access to more favorable loan terms, while a poor credit score could mean you’ll have to pay higher interest rates or be denied financing altogether.

That’s why it’s important to understand how business credit works and what steps you can take to build a strong credit history for your business. Remember, you can also repair your credit on your own or with the assistance of a credit repair company.

By following the tips above, you can improve your business credit score and access the financing you need to grow your business.

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