Building Business Credit: A Crucial Step for Loan Eligibility and Rates
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Credit scores are more than just a number. They measure a borrower’s ability to repay a loan, and lenders check your credit rating when you apply for a loan. Having a high credit score can increase your chances of being approved for a loan with favorable interest rates. Conversely, a low credit score may lead to the lender denying your loan application or accepting it but with a higher interest rate.
Building Business Credit: A Crucial Step for Loan Eligibility and Rates
Personal vs. Business Credit Scores
There are both personal and business credit scores. Business credit scores are based on a company’s financial situation, while personal credit scores are based on an individual’s finances. You build your personal credit when you open credit cards in your name. Similarly, when you open credit in your company’s name, you build business credit.
Many entrepreneurs believe that only business credit scores matter when applying for a loan, but this isn’t always true. You may be eligible for a loan based on your personal or business credit score. Some lenders only look at your personal credit score, while others may only consider your business credit score. If you apply for an unsecured loan, the lender may not take your credit score into account at all.
Factors that Affect Credit Scores
What exactly affects your credit score? There are different types of credit scores, with FICO being one of the most popular for individuals. Dun & Bradstreet, Equifax, and Experian are popular for business credit scores.
Each credit score uses its own formula, but many factors influencing these formulas are similar. For example, repayment history is crucial. Paying your debts on time will benefit your credit score. Your credit utilization also affects your score—ideally, it should be between 10% and 30%, meaning that this is the maximum amount of credit you should use at any time. Other factors that impact credit scores include outstanding debts, delinquencies, and the length of your credit history.
How to Apply for a Small Business Loan?
Lenders take on financial risk when they lend money. If a borrower does not repay a loan, the lender may have to write it off. That’s why many lenders check credit scores when reviewing a loan application.
A high credit score shows lenders that you regularly repay your debts. This makes them more comfortable lending to you, and you might also be offered a lower interest rate on your business loan, which can save you money over the life of the loan.
This post was written by a professional at Blue Tree Financing. Blue Tree Financing is a dynamic financial institution with a steadfast commitment to empowering businesses. With a diverse range of offerings including capital injections, term loans, business funding Pennsylvania, merchant cash advances, and invoice factoring, we stand ready to provide the financial solutions your company needs. When traditional banks turn you away, Blue Tree Financing steps in with a resounding “yes.” Our mission is to fuel growth, unlock potential, and drive success for businesses of all sizes. Join us on the path to prosperity.
