Almost every young entrepreneur and startup founder I’ve come across complain of access to funding as one of their biggest problems. From where I stand, this is wrong and they’re missing the whole point.
The key to funding for entrepreneurs, startups, and business owners is for them to establish and build their business credit scores. Not doing this as an entrepreneur is the biggest problem you will ever face. And until you identify this as the problem, financing will always be a nightmare for you and your business.
What’s a business credit score?
A business credit score measures your company’s financial health and credit history. Lenders use this score to assess your company’s ability to make payments on time. The information used to calculate your business credit score includes payment history and industry information. Your vendors, suppliers, lenders, and creditors usually have access to this information.
Credit scores often have a business credit rating scale of between 0 to 100. A score of 100 means your business is least likely to have late or delinquent payments.
Having a low score could be a real spoiler for your business. What’s worse? Most businesses in need of financial assistance hardly even know their credit score, talk less of aiming for a high one.
How to check your business credit score
Before you check your credit score, it’s important you understand how credit scores are calculated.
While a business credit score considers many of the same factors as a personal credit score, such as payment history and amount of debt used, business credit scores use different scoring models.
As already established, business credit scores range from 1 to 100, and the closer to 100, the better for your business. Consumer FICO scores, on the other hand, are ranked 300 to 850, with 800 and above considered as excellent.
Business credit scoring models weigh different factors when calculating scores, but you can anticipate that your payment history, age of accounts, and amount of debt will be considered.
You can check your credit score from three of the major business credit bureaus:
While there are dozens of free credit score and free credit report resources available for consumers, it gets tricky when you look for business versions.
There are select free business credit score resources available, but you may not get the full picture compared to a service that requires you to pay.
One primary reason organizations and business owners are denied funding is because of a failure to understand their credit scores. Many will say it’s very difficult to find an investor, having bank loans as the next best alternative. Yet, they still can’t make it there.
Why a credit score is important
Investors and bankers have almost the same principles when it comes to investing, and unless you identify these principles, you won’t win any of them over.
Also Read: The 4 Basic Things Every Investor Looks for in an Entrepreneur
Businesses that understand their business credit scores are more likely to get a small business loan.
One in five business owners uses their personal assets to fund their entrepreneurial dreams. Establishing business credits can help you draw a clear and important line between your personal and business finances and mitigate the need to sign a personal guarantee for business funds.
Check out my next post on the different ways you can establish your credit score to fully gain access to the funding and finance you need.
