Small Business Credit Scores & Why They’re Important in 2024

Ready to build your business credit score? Get started with this guide.

Updated: July 10, 2024
Matt Crabtree

Written By

Matt Crabtree

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You, as a small business owner, may have wondered how simple it is (or isn’t) to get financial backing for your company. 

Perhaps you used some of your own money to launch your company, but you may eventually find that you need to raise money for expansion or another reason.

Knowing how your business credit score affects your access to capital is crucial. Understanding the methodology involved, the differences between a personal credit score and a company credit score, and the factors that go into determining either is also crucial. With this information in hand, you can build solid business credit and prepare your company for future growth.

A credit score, like a personal one, can be provided to your company. Creditworthiness is a measure of a company's demonstrated financial reliability to repay debt. With a high enough score, financial aid like business loans and credit cards become options for your company. Business credit reports may be obtained from one of four main bureaus:

  • Equifax
  • Experian
  • Dun & Bradstreet
  • FICO

Read on to find out what goes into determining your company's credit score and why it matters.

How business credit scores work

Consider your company's credit rating as an indicator of its financial stability. It's a measure of how likely it is that your company will be granted financing.

A person's credit score is one factor that lenders consider when deciding whether or not to provide credit, a mortgage, or other financial services. You probably know a lot about your credit score and how it works if you've ever applied for a mortgage or financed a vehicle purchase.

With a stronger credit score, loan applications are more likely to be approved and interest rates are more competitive since lenders see us as less of a danger. If our credit score is poor, lenders may see us as a high risk and refuse to provide us with credit, loans, or a mortgage.

The same is true for commercial enterprises. You may not have thought about, or even heard of, your company's credit score while you were establishing a shop. However, if you run a business, your company has its own credit rating.

Since you and your company are seen by lenders as the same “legal entity”, your personal credit history will be used to evaluate the viability of your business. However, if you form a limited liability company, your firm's credit rating will be distinct from your own.

It's smart to verify your company's credit standing with a reputable agency like Experian or Equifax. (While checking your own credit report doesn't cost anything, many sites charge you to see the report for your company.) So, why is it crucial that a startup have solid credit? 👇

Why your business credit score matters — Top reasons 

A high credit score is crucial for your company in many ways. 

Maintaining a high credit rating is critical to the success of your company financially. Having a high credit score may help you unlock doors to new opportunities and save you money in the long term. It's smart to know where you stand financially with your company, so check your credit report.

Credit is sometimes difficult to get for new and small enterprises. Use this article from CompareBanks to learn how to boost your company's credit score and open up new avenues for securing expansion funding.

The process of obtaining credit, such as a loan or credit card, may be intimidating for many small company owners and entrepreneurs. However, many small firms rely on a solid credit line as a means of financing expansion.  

Deloitte estimates that in 2019, small companies in the United Kingdom borrowed over £24 billion, with another £6 billion in unmet credit needs for things like credit cards, overdrafts, and unsecured loans. That sum of borrowing is helping to finance and power the UK's commercial sector to the tune of £30 billion. 

However, one-fourth of all SMEs are concerned that they will not have enough money to survive the next several months. Here’s how it helps you to thrive:

#1. Boosts your resources

Financial support is critical for every company, whether it's looking to expand, get through a hard phase, or launch entirely.

Throughout their existence, the vast majority of enterprises will need some kind of financial backing. Whether it's a mortgage, a management buyout, a loan, or the financing of assets for a company. Or any of the other accessible forms of financing, to be quite honest.

One of the largest obstacles to being funded is having a low credit score, since most lenders use this number to evaluate applications for loans and consumer credit.

Small company loans and other forms of financing become more accessible with a higher credit score. If your company has a high credit score, lenders will look at it favourably and consider it a safer investment. So, getting the money you need when you need it shouldn't be an issue.

The inverse is true for those with low credit scores, who may be denied business loans, charged exorbitant interest rates, or both.

2. Gain access to low-interest loans

Loan interest rates are more favourable the higher a person's credit score.

A cheaper interest rate and a larger credit limit are just two examples of how a higher credit score may help you save money over the life of a loan. Your company might save thousands of pounds in interest payments with a drop in interest rates.

In contrast, a poor credit score will result in higher interest rates and more credit limitations for a company. Banks and other lenders may increase the interest rate and costs attached to your loan if they have reason to suspect that you will repay it on time and in full. 

Bad loan conditions might extend the time you spend paying off your debt, which can have a negative impact on your ability to pay your monthly bills and on your business's cash flow.

3. Expand your company

Possessing a high credit score opens up several expansion possibilities.

When it's time to take your company to the next level, whether via expansion, new hires, or the introduction of a new product or service, access to capital is crucial.

If your company has a low credit score, getting financing may be tough, thereby stopping its expansion.

4. Safeguard your company's future 

The recent epidemic is only one example of how unexpected future events might be.

Your company may be able to weather the financial storm at the moment, but what will happen if another crisis or unforeseen setback arises in the future?

Having confidence that your firm will withstand any storm is much easier to achieve when you have a high credit score and can easily obtain cash whenever you need it.

5. Realise your goals

Strong financial standing is essential to a successful firm.

Having a high credit rating might be the difference between feeling stuck and making progress towards your goals. When you have a high credit score, you may do everything you want financially and go closer to realising your dreams.

Keeping tabs on your company's credit rating is essential

If you have never checked your company's credit report, you may be missing out on financing opportunities

You want to apply for a business loan, but you realise you won't be approved since you have no idea what your company's credit score is. There are a number of reasons why it's crucial to keep tabs on your company's credit history, particularly if growth and expansion are in the cards.

One of the most compelling arguments for keeping tabs on your company's credit rating? Considering the fallibility of news organisations. Inaccuracies may and do occur.

Information for an account that isn't theirs may occasionally find its way into a company's credit record, just as it can happen with personal credit reports. Typographical mistakes are possible. You are in the greatest position to see an error and report it since you have the most intimate knowledge of your transactions.

Methodology behind commercial credit ratings

You probably know what your credit score is if you've ever applied for a credit card, financed a vehicle purchase, or sought out a mortgage.

Every adult in the United Kingdom has a credit score, a number that indicates to lenders the likelihood that they will be repaid if they provide credit to you. This number is derived from your credit report at a CRA, such as Experian.

Maintaining a positive personal credit rating enables you to have access to special rates on financial items such as loans and credit cards.

Despite the similarities between personal and company credit scores, many entrepreneurs either never think to check their business credit report or have a limited understanding of what it contains.

If you're a single proprietor, a lender will look at your personal credit history to judge your business's trustworthiness. However, if you form a limited liability company, you may get a separate line of credit for your firm.

Maintaining a high corporate credit score is as important as maintaining a high personal credit score if you want to buy your dream house at a reasonable interest rate. Having money at your disposal may be the deciding factor in whether or not you are able to take your business to the next level.

A solid business credit score may help you save money in the long run by qualifying you for reduced interest rates on company loans. However, if your score is poor, you may be limited to more expensive loans that limit your financial flexibility and growth.

Experian's ‘My Business Profile' allows you to monitor your company's credit score and get notifications whenever there are changes made to your credit report. Then you can quickly address any issues that arise.

What is a decent business credit score?  💵

Your company can take its cue from a predetermined ‘excellent credit score' range. 

It's vital to keep in mind that various Credit Reference Agencies may assign different ratings to your company if you request a check of your company's credit. The higher your score is on a scale from 0 to 100, the better your credit is considered to be. 

For a general idea of what an excellent credit score may be in the eyes of prospective lenders, consider the following: 

A credit score of 80 or above is outstanding and substantially increases the likelihood that your loan application will be approved. A good credit score might open doors to better loan conditions and interest rates from various financial institutions.

Keep in mind that a high credit score is not a guarantee of loan approval; in fact, depending on the amount and kind of financing you seek, firms with high credit ratings may be subject to further scrutiny. 

Credit scores between 40 and 80 are ideal for loan applicants. A lender will ask for further information, such as yearly revenue, a detailed record of all transactions and past loans, and a history of growth, if your credit score falls between 40 and 80.

The lender will consider all of these variables in addition to your credit score when deciding whether or not to provide financing to your firm. 

To be eligible for the vast majority of the market's accessible business loans, a company's credit score has to be at or close to 40. However, other things may aid in your favour when asking lenders for a loan, such as solid business credentials or evidence that your organisation is an established business. 

Methods for improving your company's credit rating

Since 2017, the only new small company loans have come from non-traditional lenders including P2P platforms and smaller, less well-known banks. 

Credit Reference Agencies, however, will share all of the data they have on file about you with any lender you seek for business credit from, whether it is a P2P platform or a major high street bank.  

Several sources will contribute to this compilation. Businesses that report on trade credit include banks, financial institutions, suppliers, and the Gazette and Registry of Judgements. 

Since credit ratings are dependent on so many criteria beyond just whether or not a firm pays its bills on time, these documents can help prospective lenders better understand your company's financial status. 

Your business may improve its credit score by doing the following steps, which will have a favourable impact on the information lenders and suppliers get about your firm. 

  • Don't be late with any payments or deviate from the terms of your agreement (we know, it's not only about the bills, but that's still important).
  • Don't let yourself be hit with any CCJs (judgements from the county court).  
  • Ownership information and a complete list of firm accounts should be kept up to date at all times. You should also make sure to submit them on time.  

In addition, the amount of debt and credit your company holds, as well as the number of credit applications it has submitted in the past, will all go towards your business credit score. 

Methods for boosting your company's credit rating

As a business owner, it is essential that you prioritise the maintenance and improvement of your company's credit score after it has been established.  

One of the most important things you can do to maintain your company's status as a safe bet for investors is to pay your bills on time and file your annual report with Companies House as required. Your company's prospects of acquiring a bank loan or line of credit from suppliers would suffer if you are unable to achieve these minimum requirements. 

Keeping your organisation information current wherever it appears is another easy strategy to preserve your standing as a trustworthy business. If you make a substantial change to your firm, such as relocating or opening a new location, you must notify Companies House and any affected suppliers and investors. 

Avoid asking for business loans and lines of credit from too many sources at once, particularly if they are all competing for your company.

Although it may seem paradoxical, submitting several applications for loans in a short period of time may cause lenders to see your company as being in financial distress or dependent on debt, making it a higher-risk borrower because of their worries about timely and complete payback. 

More companies are going back to credit as a growth strategy now that epidemic restrictions have been eased. Sixty-one percent of small firms employing financing increased their borrowing in Q2 2021 compared to Q1 and 36 percent of these enterprises borrowed for the first time.  

Tip: Credit builders…

Customers with a Cashplus Business Extra Bank Account have access to a Business Creditbuilder, which may help them establish or enhance their business credit. 

Business Creditbuilder is a simple and cost-free tool that may help your firm create a better credit history and a higher credit score with the major credit reporting agencies. 

Sign up, and they'll loan you enough money to cover the cost of your Business Account for a year (£108), which you can pay back in 12 equal monthly payments along with your regular account charge.  

They will update the Credit Reference Agencies regularly as you pay these fees on time and in full for a year.  The more reliable and secure your firm seems, the more likely you are to be approved for a loan or line of credit. 

Why your business credit score matters: Conclusion

Lenders will examine your company's records meticulously to determine its creditworthiness if you seek business credit. 

Although each may have somewhat different requirements for approval, a high credit score will almost always be taken into account first. 

Not only banks and other financial institutions, but also potential investors and suppliers, might benefit from seeing your company's credit score. It highlights your company's credit history and creditworthiness and aids lenders and suppliers in determining your company's ability to repay bills. 

Consequently, improving and keeping a high credit score is crucial if you want to expand your company. Cashplus lays out the standards for what constitutes a high credit score for businesses and provides advice for establishing and maintaining a solid one. 

A mistake on your company's credit record might make it difficult, if not impossible, to get financing from financial institutions and other creditors.

If you see an inaccuracy on your credit report, don't worry; the credit bureau will look into it. If the agency confirms the inconsistency, any other organisations that have your data will need to update their records as well.

As soon as you are aware of your company's credit rating, you may take steps to raise it. Your small business's potential is greatly expanded when its credit is in good standing.


What makes credit lines so vital to small businesses?

The importance of a good credit score for a business owner.

The importance of a good credit rating in the UK.

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