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Understanding the Importance of Business Credit Score

Posted by Kanika Sinha

January 22, 2024

Your secret weapon to building a solid financial foundation for your company to borrow, grow, and thrive.

You’ve spent hours finalizing your company name. You’ve learned to draft product development plans and taught yourself marketing. But in figuring out all these details of launching a new business, you forgot to consider the cornerstone of a solid financial foundation — business credit. 

Business credit often takes a backseat in startups. It’s an essential aspect that most deprioritize, especially during the early stages. Yet, it’s precisely in these initial stages that building business credit is crucial.

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But don’t just take our word for it; have a look at these statistics:

  • The NSBA Small Business Access to Capital Study notes that 20% of small business loans get rejected due to business credit.
  • Furthermore, a study by Demand Media reveals that lenders often consider a business credit score of 75 as “acceptable,” making it difficult for those with a lower score to get a small business loan.

Below is your guide to better understanding business credit and its importance, including tips for credit score improvement.

Business credit score explained

What is a business credit score?

It gauges the overall creditworthiness of a business. It demonstrates how financially sound and reliable a company is and how likely it is to make its owed payments on time. 

A business credit score is also a numerical measure like a personal credit score. A higher score is generally better, but there are some variations among credit bureaus.

How it works?

Three major credit bureaus determine business credit scores in the US: Equifax, Experian, and Dun & Bradstreet. The scores are calculated based on the business’s history of credit. This entails considering the payment history of loans, settlement of credit utilization, established trade lines, and the total debt level.

The business credit score determines a business’s creditworthiness for several things, including loans, insurance, collateral requirements, credit cards, and payment terms. 

Key benefits of having a robust business credit

Having an exemplary business credit score has many advantages, especially from the perspective of availing of business loans. Here are the main benefits:

1. Quick loan approvals

Higher credit scores ensure eligibility for business loans as well as trade lines. Lenders are usually hesitant to lend money to businesses with poor credit histories for fear they won’t be able to make their interest payments on time or at all. As a business with an excellent credit score, you’ll likely be able to avail loans more easily and quickly.

2. Favorable loan terms

A high business credit score lets you borrow loans at competitive interest rates and terms. Additionally, it expedites the loan approval process.

3. Easier access to funds

A healthy credit score makes it much easier for companies to find investors willing to back them. Having investors of repute on board ensures you always have funds available for expansion and growth.

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4. Better payment terms from suppliers

Maintaining a solid credit score also bodes well for the credit terms suppliers provide. Knowing that your business is financially stable and capable of repaying debts promptly, suppliers will be more comfortable forgoing prepayment and allowing you to purchase on credit. 

5. Protects personal finances

Building business credit allows you to segregate personal and business financial responsibilities. This ensures that your credit rating remains unaffected by any business’s economic challenges, as your company debts are reported separately on small business credit reports.

Pro tips to build a strong credit score

1. Register your small business

Ensure that you register your business with the Secretary of State’s office. This move would help you separate your business as a separate entity, legally distinct from you as an individual, making it easier to establish business credit. 

2. Open a business bank account

Establish a corporate banking account separate from your finances. Doing so will help you authenticate your firm as a separate legal entity.

3. Pay creditors on time

Prioritize paying bills in full and on time. Consider leveraging real-time financial reporting to ensure timely payment of your bills and invoices.

4. Get a business credit card

Opt for a secured corporate credit card backed by a deposit account. These cards will give your small business a solid starting point to build a solid credit history. 

5. Establish trade lines with suppliers

Set up strong trade lines with suppliers and vendors who report payment activities to credit bureaus. This will ensure that your purchases and payments get reported to business credit reporting agencies.

6. Reduce existing debt

Ensure you fulfill all your financial obligations. This entails paying off your business’s credit card debt and settling vendor payments and other outstanding balances.

The final word

Lenders, insurers, investors, and suppliers rely on business credit reports to evaluate a company’s financial health and creditworthiness. With a solid business credit, you’ll create a safety net for your small business, so you should be able to secure the business funding you need for financial stability and growth.

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Want to know more about finance and accounting? Since 2006, Escalon has helped thousands of startups get off the ground with our back-office solutions for accounting, bookkeeping, taxes, HR, payroll, insurance, and recruiting — and we can help yours, too. Talk to an expert today. 

This material has been prepared for informational purposes only. Escalon and its affiliates are not providing tax, legal or accounting advice in this article. If you would like to engage with Escalon, please contact us here.


Kanika Sinha
Kanika Sinha

Kanika is an enthusiastic content writer who craves to push the boundaries and explore uncharted territories. With her exceptional writing skills and in-depth knowledge of business-to-business dynamics, she creates compelling narratives that help businesses achieve tangible ROI. When not hunched over the keyboard, you can find her sweating it out in the gym, or indulging in a marathon of adorable movies with her young son.

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