A business credit score is similar to a personal credit score. However, rather than include mostly personal details, business credit scores consist of employee information, historical business data, payment history, and amounts owing.
As a business owner earning a regular income, you might not think you have to worry about your credit score. However, you might realize you do when the time comes to secure a business loan. If the application process has revealed a poor credit score, the following factors might be to blame:
Payments Are Late or Missed
Your business can likely access no credit check loans to compensate for a bad credit score limiting traditional funding options, so there will always be options for giving your business a much-needed funding boost. However, you likely want to know why you have bad credit in the first place. Often, late or missed payments can be to blame.
If you or your accounts department hasn’t made loan or credit card payments on time or missed them altogether, this action can affect your credit score. You might even find that late payments to vendors, or not paying them at all, might also result in a decreased score.
You Have a History of Bankruptcy or Insolvency
Businesses go bankrupt for a number of reasons, such as poor financial practices and poor management. Whatever the reason, you might find that declaring bankruptcy is the best way to put your financial woes behind you and start fresh.
However, bankruptcy can pose problems for you in the future. Bankruptcy information can remain on your business credit report for nine years and nine months. Should you try to secure traditional lending for a new business venture in this timeframe, you might find it much more challenging.
Your Credit Mix Is Limited
Lenders want to be sure that you have a healthy history of paying your bills on time. The more positive history you have, the more confidence they can have that you’ll continue this trend with loan payments to them.
If you don’t yet have well-established credit, or your credit mix is limited, your score might not be as healthy as other more established businesses. Lending companies want to see loans, vendor credit, equipment leases, and credit cards. Your business credit score might improve if you have these credit types and ensure regular, on-time payments.
You Have High Debt Levels
High debt levels in your business don’t always make you a good candidate for further lending. If you’ve made late payments on any other loans you have, you might also find that your credit score is lower for this reason, too.
Lenders often consider your current debt levels to ensure you have the means to pay back their loan. Consider exploring debt consolidation to reduce financial stress or paying down some of your debt to potentially improve your lending options.
Not every business owner knows they have a poor credit score. When they find out, it can cause a great deal of confusion. While there can be many causes, the reasons above are generally among the most common.