Understanding business credit scores and how they affect your financing options

A business credit score is a key gauge of financial health and it plays a huge role in determining future financing prospects. A credit agency will assess payment history, level of debt, company structure (e.g. limited or sole trader) and any public records (such as CCJ’s). A score is then generated which a lender will assess to gauge the risk associated with offering business finance. 

In simple terms:

• A strong credit score will help to secure better interest rates, higher loan amounts and access to unsecured loans and overdrafts.
• A weak credit score will offer reduced options, increase costs and can result in loan applications being declined. 

There are several steps a business can take to maintain a good credit score: 

1. Significantly reduce debtor days and late payments
2. Keep debt levels reasonable and avoid over-leverage
3. Maintain accurate, timely financial records and bank statements
4. If still trading as a sole trader consider structuring as a limited company, this often improves credibility with lenders
5. File accounts and confirmation statements on time

The best advice is to be proactive:

Regularly check the businesses credit report, address any discrepancies promptly, and monitor for changes. If previous credit issues have been faced, a business should be upfront with lenders about these problems and how they were resolved. Finally, always pay creditors on time, not least of which HMRC.

Remember a business credit score isn’t just a number, it’s a key that can either open or close doors to funding. A strong score enhances good borrowing power and helps secure more favourable terms, while a weak one can limit the available options. Taking proactive steps to build and maintain a healthy credit profile will make all the difference when it’s time to secure finance for growth.

Looking for a little help with business finance? Call our team on 01993 706403 or e-mail enquiries@ngifinance.co.uk.