Business loans serve many purposes. From getting you out of a rut to helping you expand your services, they can take a weight off your shoulders when the stakes are high.
They are, however, a big commitment, and if you’re not ready, they can end up as more hindrance than help. On top of that, they’re not always as easy to acquire as you may think. During difficult economic times, business credit scores can leave companies standing in the dust, waiting for a loan they’ll never be granted.
Before embarking on your business finance journey, you need to know the facts.
Bear these three facts in mind and you’ll be in a much better position to get the best deal – both for you and your business.
1. Keep all three credit bureaus updated
You need business credit for more than just a loan—it plays a part in winning new clients, too.
There are three main credit bureaus that collect your data: Dun & Bradstreet, Equifax, and Experian. Unlike personal credit, business credit information is available for everyone to see—employees, potential clients, and even your competitors.
Potential customers may check your information with sites like Dun & Bradstreet to determine if you’re a quality company to do business with. Any incomplete data or poor scores can affect whether you win their business.
These vendors all produce data in slightly different ways, however. It, therefore, makes sense to keep all of them updated since you don’t know which your lender will be using.
2. Use lenders that send feedback to these bureaus
Contrary to popular belief, small business loans don’t only reduce your business credit—they can also boost it. Focus on making your repayments on time to lenders who report back to these bureaus, and you’ll bolster your business credit.
This will make you eligible for larger loans at lower interest in the future. If you’re unsure whether your chosen lender reports back to these bureaus, ask them before moving forward.
3. Always repay on time, or early
All bureaus work out their scores based on different debt service coverage ratio metrics, but almost all of them take your repayment history into account. If you’ve regularly made late repayments, the knock-on effect on your credit score will make it difficult to get a loan.
Certain bureaus, such as Dun & Bradstreet, only give perfect scores to those who repay early. Just ensure that your chosen lender doesn’t charge early repayment fees, as these can vastly increase the amount you have to pay back.
What you need to do
If your business might need a loan—either now or in the future—you need to start building your credit rating. You’ll be more likely to be granted finance by larger institutions, with lower interest and flexible repayment terms.
Your credit score is likely to be slightly different between bureaus, as they all calculate them in their own ways. Keep all your records updated, though, and you’ll pave the way to business finance success.
Megan Totka is the Chief Editor for ChamberofCommerce.com. She specializes on the topic of small business tips and resources. ChamberofCommerce.com helps small businesses grow their business on the web and facilitates connectivity between local businesses and more than 7,000 Chambers of Commerce worldwide.