Your business credit score is a measure of its likelihood to honor its financial obligations. As such, this seemingly innocuous figure will significantly affect your ability to access credit – as well as the interest rates you pay.
It therefore makes good sense to build this score as rapidly as you can, but companies frequently make excuses and find more important things to focus on. This can be significantly damaging to their longer-term prospects.
Excuse 1: Business credit scores don’t matter that much
Really? Banks, landlords and suppliers wouldn’t agree with this. In fact, they’ll use your credit rating to decide whether or not to do business with you, and on what terms.
So, if you’re willing to pay inflated interest rates, pay upfront for your stock and rent second-rate premises, keep on convincing yourself that your credit score counts for very little.
Excuse 2: I don’t need to borrow, so what does it matter?
While most businesses need to borrow in order to start up, many are self-funded. However, even if you don’t need a loan today, doesn’t mean you won’t require an injection of capital tomorrow.
You should also bear in mind that even the best funded and most profitable businesses can hit a sudden cash flow crisis, and without a solid credit score, you could struggle to get the money you need to dig yourself out of trouble.
Excuse 3: Startups can’t build a credit score anyway
It is true that banks generally won’t lend to new businesses, preventing them from building their credit score in this way. However, suppliers and vendors are often prepared to offer short-term financing in the form of trade credit, which allows you to pay for orders 30 or 60 days in arrears (post invoice) rather than via cash on delivery or a pro forma invoice.
Make sure you pay on time and in full and your credit score will start to build, enabling you to negotiate even better terms of trade (and obtain a bank loan if you need one).
Excuse 4: I can’t build a business credit score because of my poor personal credit
There is some degree of truth in this: if you have personal credit problems and no business credit score, you could struggle at first. However, when banks won’t lend, alternative lenders often will, applying quite different acceptance criteria, so you can still borrow and still build your business credit score.
Excuse 5: I don’t need a business credit score – look at my great personal credit!
The flip side of excuse four, this argument suggests that a good personal credit score obviates the need for a business score. However, research conducted by the Small Business Administration suggests that a creditworthy company can obtain between 10 and 100 times as much credit as an individual.
Also, bear in mind that mixing your personal and corporate finances can cause terrible problems for you if the business hits trouble.
Excuse 6: I simply don’t have the time
This excuse brings us back to where we started: you should never consider yourself too busy to build your credit score.
Make sure your suppliers report your positive transactions to the credit bureau so that your score continues to build and build, and make certain you adhere to agreed terms of credit and repay any borrowing on time and in full. Your business could depend on it.