Why your Business Credit Rating is vital to successfully Raising Finance

What is your business credit rating?

A business credit rating is a measure of a business's creditworthiness. It is used by lenders to assess how likely your business is to default on your debt - it a measure of risk. Credit rating scores range from 0 to 100, with 0 representing a high risk and 100 representing a low risk.

Who decides what your credit rating score is?

The financial institution you approach to raise finance will ask a third party independent intermediary, a credit reference agency, for a credit report on your business. A credit report assesses the credit worthiness of your business looking at the total debt, current balances, credit limits, and history of defaults, County Court Judgments and bankruptcies if any, of your business. Credit rating agencies use this information in a complex set of algorithms to calculate a credit score for your business.

The main business credit reference agencies in the UK are:

Red Flag
Experian
Dunn & Bradstreet
Creditsafe
Equifax

Why is your business credit rating so important in raising finance?

Improving your business credit rating is important as it can help you secure better financing options, lower interest rates, and access to more business opportunities. It is also essential for establishing credibility with lenders, suppliers, and other business partners.

In the same way that a great personal credit rating is important if you want to get a credit card or apply for a mortgage, a good business credit score will make your business an attractive investment when you are trying to raise finance. Lenders will have faith that you will be able to repay the money they are lending you as promised and on time. You will have a greater choice of lenders who will feel confident to offer you better deals and lower interest rates as the risk of lending to you is lower.

Conversely, if you have a lower credit score, fewer lenders will be willing to offer you finance. The deals on offer will be less attractive and at higher interest rates, pushing up your business costs.

A good credit score is not only important when raising finance. New suppliers and business partners will also often complete a company credit check. They'll want to check that your company is financially healthy before agreeing to do business with you or agreeing credit terms. A new customer will hesitate in ordering from you if they see that you have a low credit score, inferring that your business may not be around for much longer or may default on supplying the products or services they are ordering from you.

What is a good credit rating?

80 or over: A business credit score above 80 is typically considered excellent. It could also help you access better deals on financial products like business loans, including lower interest rates.

40 to 80: You could be asked to provide additional information by lenders or other businesses such as suppliers, to help them understand your financial position and creditworthiness. Especially if your score is at the lower end of the range.

40 and below: Usually, lenders are looking for a credit score above 40 before they will agree to a loan for example. Providing additional information may help, but your business credit rating could still impact the decision. Similarly, it could put other businesses off working with you.

How can Wood and Disney help you to improve your credit rating?

Having a poor credit rating isn't the end of the world. Wood and Disney can work with you to improve your score. It may take a little time but we have a lot of experience making sure our clients rank highly to secure the best possible finance deals.

Below, you'll find a few tips on how you can start to push your score higher and how Wood and Disney can help you and make sure that your credit score stays high!

File full accounts with HMRC and Companies House, on time and in line with guidelines, to provide more data about the financial health of your business. Wood and Disney are chartered accountants. Compliance work forms the cornerstone of our business from which the advice we offer and other services flow. We make sure that your accounts are accurate, consistent and up to date AND filed on time. We also make sure that you file the correct information at Companies House. Your filed accounts are used by credit referencing agencies and lenders to assess the viability of your business. Accurate, consistent and up to date accounts will improve your credit rating and make raising finance easier. Take a look at our >> Accountancy Solutions - Compliance page.

Check your credit report: The first step to improving your credit rating is to check your credit report for errors or inaccuracies. If you find any errors, you should dispute them with the credit reference agency to have them corrected. Wood and Disney can show you how to do this or carry out the checks on your behalf.

Monitor your credit report: Check your business credit report regularly to ensure that all the information is accurate and up-to-date. If you find any errors, report them to the credit reporting agencies immediately. Wood and Disney can set up systems for you to remind you to check your credit report at predetermined intervals. This is part of the control systems that we set up Strengthening your Business. Take a look at how we protect and strengthen your business for stability and resilience in our >> Business Solutions - Strengthening your Business - Control.

Pay your bills on time: Late payments can significantly damage your business credit rating. Make sure to pay your bills on time, including your credit cards, loans, and other accounts. For Wood and Disney this is part and parcel of having the right control systems and cash flow management systems in place >> Business Solutions - Strengthening your Business - Control . Once we've helped you set up the right systems we can help you with their practical implementation using cloud based apps to make managing your cash flow and paying your bills seamless with your control and accounts systems >> Cloud Accounting Apps.

Use credit wisely: Only use credit when you need it and avoid maxing out your credit lines. Lenders and other creditors prefer to see that you have available credit that you're not using. This is known as credit utilisation and ideally your credit debt should be no more than 30% of your total available credit. Wood and Disney use their Strategic Cash Retention Programme to build a cash reserve in your business to make your business resilient and to support growth. This means that you have the liquidity strength in your business to not be dependent on raising finance externally to get you over short term blips in cash flow. Plus you have a strong business, with good liquidity, to be looked upon very favourably by lenders, if you need to finance capital investments and growth expansion plans. >> Cash Flow Solutions to Build Cash Reserves.

Establish credit accounts: Open credit accounts with suppliers and vendors that report to credit bureaus. Regularly using these accounts and paying them on time can help you build a positive credit history. Credit referencing agencies want to see proof that you are low risk by paying off bills from suppliers in full and on time.

Build a business credit history: Consider getting a business credit card or small business loan to establish a credit history for your business. Make sure to pay these accounts on time and in full. Again, credit referencing agencies want to see proof that you are low risk - the more evidence they have that you can be relied upon to settle your debts fully and promptly, the higher your credit score.

Incorporate your business: Incorporating your business can help separate your personal and business finances, which can improve your business credit rating. Protecting you and your business is fundamental to building a strong foundation for business growth. Wood and Disney put in place business and financial structures, and the right legal frameworks to protect your personal and business assets. Find out more >> Business - Solutions - Strengthening your Business - Protect .

Maintain good relationships with lenders and suppliers: Good relationships with your lenders and suppliers can help you negotiate better terms and rates, which can ultimately improve your business credit rating. Wood and Disney can help you negotiate more favourable payment terms, such as extended payment periods or explore vendor financing options.

Let Wood and Disney start to help you to improve your credit rating

Improving your business credit rating takes time and effort, but it's essential for the success of your business. If you think your business credit rating is hindering your chances of getting a good finance deal or negatively affecting your dealings with suppliers or customers, then get in touch with Wood and Disney. We can work with you to push up your credit score, put you in touch with the right lenders to give you the best deals in raising finance and put in place the control systems to keep your business out of trouble and maintain a great credit rating.

Call us on 01206 233170 or message us and we'll get back to you.