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Updated: October 6th, 2020
If there’s one thing that the COVID-19 pandemic has proven, it’s the importance of being able to access financing for your business. Now that the stimulus packages have eased, lenders are ready and willing to deliver funds to keep your business growing in a post-pandemic world. The need for capital has never been greater as small businesses reopen with changes to meet their customers.
In the wake of the lockdowns that caused the economy to come to a standstill, there also is a heightened focus on credit risk. As a result, you’ll want to be sure your credit profile is as strong as possible so that lenders are inclined to deliver small business loans to you. A good place to start is your business credit score, which is a reflection of your ability to make payments on time (similar to your personal credit score). You might be wondering how to improve your business credit score. The answer’s not as hard as you might think.
You’ll find there are parallels between your personal and credit business scores. While the range for your personal score is 300-850, your business credit score will fall somewhere between zero and 100. It is calculated by a trio of credit agencies, at least a couple of which should ring a bell: Dun & Bradstreet, Experian and Equifax. The higher your score, the better your chances of getting approved for a business loan.
There’s another layer to your business credit profile, and it involves your business FICO score, which is known as the FICO Liquid Credit Small Business Scoring Service, or SBSS. This is the score the U.S. Small Business Administration (SBA) is likely to turn to when deciding whether to back a 7(a) loan for less than $350,000.
You may be wondering – what credit score is needed for an SBA loan? The business credit score range for the SBA SBSS is zero to 300. Once again, you’ll want to target the higher end of the range. The required level is 155, starting on Oct. 1, 2020. Having a score between 160-180 will increase your chances of getting approved.
So if you’re wondering, ‘Can I get an SBA loan with bad credit?’ — keep reading. Because when it comes to financing, the best offense is a good defense. You are sure to be on your way to increase your business credit score by taking the following steps.
Pay your bills on time. It sounds simple enough, but when cash flow is tight, it can be easier said than done. Your payment history carries a lot of weight in your credit score. Paying your bills on time is a surefire way to create a positive payment history for your business credit score. Remember this when you are juggling income and expenses.
The good news is that when it comes to your credit, partial payments go a long way. So even if you can’t pay back the entire amount due, pay your creditors. Whether it’s a supplier or a vendor, something is better than nothing for your business credit score.
When it comes to your business credit score, what you don’t know can hurt you. That’s why you’ll want to check your business credit report on a regular basis. Make sure that all of the information is current, and look out for any mistakes. Even if your business has a unique name, it’s not unheard of for the credit bureaus to confuse business names. This would result in erroneous information making its way to your file.
On a more nefarious note, you also want to keep an eye out for possible fraudulent activity on your report. Telltale signs could be unauthorized credit inquiries or loan applications, for instance. If you find this, contact the credit bureau as soon as possible so that you can have the information removed.
Have you noticed that your personal credit score rewards you for not using 100% of the credit that you have access to? This percentage is known as a credit utilization rate, this number could move your business credit score too. This is dependent on how much of your available credit you’re accessing and is a percentage of how much credit you’re using versus how total credit you can access. To improve your business credit report, try and keep your credit use below 15% of your limit. You can do this through a combination of paying off balances and increasing your available credit.
You can do whatever it takes to pay your suppliers and vendors each week, or whatever payment schedule you’re on. If they are not sharing your payment history with the credit bureaus, ask them to do so. Focus on the vendors and suppliers with whom you have a solid relationship and a positive payment history.
Even though you should keep your personal and business finances separate, there could still be overlap. Lenders have been known to check an applicant’s personal credit history when there is not much of a business credit history to pull from. So don’t forget about your personal credit profile either.
As you work to improve your business credit score, keep in mind that your credit profile goes beyond this number. Lenders are looking at the big picture to ensure that you’re a good credit risk and are likely to repay your loan. You should be maximizing the positives, such as supplier payment history, and working to reduce any flaws, such as a blip in payments or too much leverage vs. income. If all of these bases are covered, chances are you will find yourself on the receiving end of financing sooner than later.