When Does Your Business Credit Score Matter?

With so many things to focus on, building a business credit score is often the last thing on an entrepreneur’s mind. However, putting this aspect of the business on the back burner often leads to significant problems later on.

While it’s important to focus on the daily grind and strategic planning for the future, it’s equally important to know one’s business credit score. Here are some instances when this number will play a pivotal role in your business.

When Securing Financing

One of the biggest occasions when your business credit score will matter is when you attempt to secure financing for your business. Whether you’re financing company vehicles or getting access to more cash for expansion, your business credit score is the most critical metric. Without a good credit score, you won’t be approved for financing from a reputable lender.

What does this mean for businesses? For many, it means becoming stagnant without room to expand. If you plan on making changes to support growth in your business, check in with your credit score, and set improvement goals.

When Leasing Equipment

Many companies require special equipment to operate. For startups, in particular, purchasing the equipment outright isn’t necessarily a feasible strategy. Keep in mind that it’s not only specialized businesses that require equipment to operate. A fitness center could lease their treadmills and machines. A design agency could lease industrial printers.

Depending on your industry and the nature of the equipment you require, leasing companies may have a standard credit score requirement. If you don’t meet the criteria, you may be expected to put down a large security deposit in cash. Again, startups with limited liquid assets could struggle with this requirement.

When Working with Vendors

Vendors often require a credit check before they’ll agree to offer payment terms. For example, if you own a restaurant that places bulk orders of wholesale foodstuffs, you’ll likely enter an agreement that requires you to pay back the vendor within a set period. Your credit score summarizes your payment and debt behavior, showing vendors that you can be trusted. Negative items like collections can lower your credit score and indicate to your vendors that you can’t be trusted.

In this example, the low credit score could result in you having to pay for your order in advance. Why does this matter? For some businesses, those raw materials are required to generate the income to pay for them. Without vendor terms, the company can’t operate.

For Securing Low Interest Rates

Having a low credit score doesn’t necessarily mean you won’t get the funding or equipment you need to run your business. However, it does impact the interest rates and terms that you’ll be approved for when applying for financing.

Generally speaking, the higher your credit score, the better your financing options become. If you’re securing a large loan, having lower interest rates will significantly impact your company’s bottom line. Improving your business credit score is the key to making this happen.

For Preventing Missed Opportunities

Your business credit score also plays an integral role in investor decisions. If a potential investor sees that you’re unable to handle your business finances, they’ll be less likely to hand over their money.

In essence, your business credit score is a core element of being able to take advantage of profitable opportunities. If your growth or expansion is limited by a poor credit score, then your business will remain stagnant. Having a good business credit score means having the bandwidth to explore new opportunities and build a successful business.

If you aren’t sure of your current business credit score, pull a report and do some digging. This is the first step to making strategic improvements and putting your company in a better position for longevity and success.