When a business comes in need of larger working capital, a business loan comes into the picture. And in order to avail such credit, it is very important for businesses to have a Business Credit Score or BCR.A Business Credit Score is that number that indicates whether a company has the capacity to repay a loan or not. This score is calculated based on the company?s credit obligations like bills, credit card dues, loan EMIs, etc. and repayment history with suppliers and lenders. It accounts for the age of the company?s operations, legal litigations (if any), business type and size.
A lender also looks at the business revenue, profits, debts, liabilities to evaluate the complete profile of a business. If the business is in its initial stages, the lender is more likely to check the Business Credit Score and the Personal Credit Score of the stakeholders to get a better grasp.
Related Reads: How do banks assess your business? creditworthiness?
What is a Good Credit Score for Availing Business Loans?
There is no such specific credit score required to avail a business loan. This is because a Business Credit Score is reviewed in cohesion with other factors mentioned earlier. However, let?s assume the borrower meets all the other criteria and has strong credentials then the minimum score range could fall somewhere between 640 and 700. But most borrowers prefer a score above 700.
Why Keep Track
It is necessary to keep a track of your BCR in order to have better control of your finances and plan the future accordingly. Let?s look at a few major reasons:
- To know where you stand in the race
- To ensure that your credit image is in good shape
- To steer clear of any inaccurate information
- To know in advance whether a new line of credit is possible to pick up or not
- To understand which actions damaged your score and which ones benefitted it
- To stay on top of any offers or deals that you can avail
Business Credit Score vs Personal Credit Score
Every businessperson is bound to have both these scores and they both stand for different purposes.
A Personal Credit Score is calculated based on the number of credit lines a borrower has picked to fulfill personal needs either in the form of a credit card or a loan. It considers all the financial aspects of your personal finances.
A Business Credit Score accounts for the financial transactions made for a business. It is evaluated based on the historical reliability and financial commitments of a business and the risk involved in offering credit to that business.
It is often advised that your personal finances should be kept away from your business credit. Below are the reasons why:
- A business lender will keep a close track of you spends when they give you a line of business credit. So keep your business expenses separate from your personal expenses.
- If your business fails to pick up, then you risk losing all your personal milestones as well. Say you use your business loan to make the down-payment of a house, and your business goes bankrupt simultaneously, you can end up losing your home altogether.
- If your business is sued or involved in liabilities legally, it could put your personal assets at risk too.
- Every transaction you make for your business contributes to your tax calculations and the same goes for your personal expenses too. While auditing, these factors may be reviewed in detail.
In the dynamic world of business, losses can be incurred one day,and profits can be earned the next. This means that your business credit score is susceptible to fluctuations as well. To maintain strong financial health, you must keep personal and business finances separate.
To check where your business stands, start by getting your Business Credit Scorewith CRIF.