Check Your Business Credit Health

Good Credit Health for Better Business Loans

Any person wanting to start a business or any individual wanting to expand their business need funds to do so. This is where individuals and entrepreneurs take loans at a previously agreed rate of interest and time. Without this working, capital businesses cannot run smoothly. There are 2 types of business loans

1. Secured loans – This is the case where individuals and entrepreneurs provide collateral like inventory, land, machinery etc. Here the interest rate will be less

2. Unsecured loans – This is the case where businesses take a loan without any collateral. The interest rates are high as the risk for the banks are high

The business loan could be for multiple reasons such as

• Expanding operations
• Purchase Equipment
• Purchase of inventory
• To improve working capital
• And finally, to improve your credit score

The eligibility for business loans for self employed professionals are as follows

• Type of business: Proprietorship, Partnership, Private Limited or Public Limited
• Turnover of the business
• Profit made by the business
• Cash flow of the business
• Track record of business

Benefits of Business Credit Health Check

A business credit health check is more than getting business credit score and company credit report. It provides following benefits to the business owners.

• Useful in developing strategies
• Building good customer relationship
• By knowing the credit reports, it is helpful to stay ahead in the competition.
• Keep track of past and present loans
• Helpful in analysing the business risks and controlling them

Importance of Business Credit Health Check

A business credit health check credit report contains the business journey of any company. When business people apply for a loan to expand the business, the creditworthiness of the individual is assessed by the business credit report. Hence it is highly important to do a regular business credit health check to analyse the promoter’ credit standing to be eligible for future credit. Moreover, it can help the business people find out credit problems in case there are any and solve them at the earliest.

What Is a Credit Score?

A credit score is a three-digit numerical expression which is derived based on the information available on your credit report. It is computed using your credit and payment history, type of borrowings, credit utilisation etc.

The lenders report their customer’s credit information to the credit bureaus who compute the credit scores based on the credit behaviour.

A credit report gives a snapshot of an individual’s credit accounts, repayment history and various other financial dealings. The credit score is calculated based on the above factors. Creditors check the credit score before taking a decision to extend credit to their customers.

The credit score in the case of self-employed individuals also gives a picture of how well that individual manages the business. A business credit health report gives the lender an idea at glance as to how a business functions. A business credit health check is vital for managing the business efficiently and keeping track of the credit related activities.

How a Credit Score Is Calculated?

A credit score is calculated based on the factors such as length of the credit record, payment history, credit utilisation ratio and credit exposure. Any defaults and negative issues can lower the credit score immensely.

Why Credit Score is Very Important?

When an individual applies for a loan or any other credits, the lenders refer to the credit score to evaluate the creditworthiness and eligibility. It becomes a decisive factor for the banks to grant credit to their consumers. A good credit score not only helps in getting a loan but also favours in terms of interest rate.

Periodically checking the credit score gives the individual an idea about their credit worthiness, in case of past defaults and if they have applied for credit improvement services, the progress of which can be tracked from time to time.

It is also wise to check your credit score before applying for any kind of credit, be it the credit cards for your shopping needs to the all-important home loan which fulfils your dream of a bigger house. Knowing your credit score before applying for credit and in the case of a good credit score puts you in an advantageous position with respect to negotiations on interest rates and loan tenure.