What is a Business Credit Rating?

Just like a personal credit rating, a business credit rating records certain financial information to determine how worthy your credit is. A business credit score is often used to see whether they are eligible for credit, funding, additional finances or any other forms of investment. But it can also be used as a tool to help businesses to manage cash flow.

Before entering into long term contracts with new suppliers or clients businesses will usually run a background business credit check. This is in order to gain an insight into that business’s credit rating and whether or not they’re reliable to work with. It will immediately flag up any concerns or previous affairs that may require your attention, protecting you from entering into a working relationship with a bed debtor.

Likewise, it’s also highly likely they’ll simultaneously run one on you too, so it’s definitely worth doing your research and making sure you’re as creditworthy as can be. Many industries such as construction for example, rely heavily on business credit due to complex supply chains. No matter what size your business is, or the sector, obtaining an in-depth credit report and rating is highly recommended as it will put you on solid terms with suppliers and clients who will be safe in the knowledge your business is reliable and creditworthy.

What Happens if Your Business Credit Rating is Low?

Having a high credit score rating is incredibly beneficial for your business as it puts you in a positive light in the perspective of suppliers and clients. A bad credit score rating however can have negative consequences for your business, not least the capacity to access funding and additional finances.

If your credit rating score is low then it opens a can of worms which could prove detrimental to your business. You may as a result be offered higher rates which could negatively impact your finances and capacity to grow. Having a poor credit rating is commonly one of the main variables that causes a credit application being rejected.

A credit rating is calculated by credit reference agencies, allowing companies to assess your behaviour if they choose to lend to you or do business. Crucially, it will contain information related to how you have previously used credit, for example how many lines of credit you’ve already got, if have missed payments, or if credit limits have been exceeded.

Essentially, the lower your business credit rating the less attractive you will be to not only lenders but also suppliers and other businesses who you may need in order to operate fully, as well as potential clients.

If you have any further questions regarding this topic, please call us on 01992 642024.