Introduction

Today the competition in the market is very tough and a business should be financially very strong to be able to survive the competition and to grow further. When in need to grow, an MSME would need sufficient cash reserves with them. MSME owners who are struggling with a lack of funds can depend on Business loans and other funding options. However to qualify for a business loan a strong credit score is a minimum requirement set by almost all sources of lending. A strong credit score will show that the business is financially strong without liabilities and increases chances to get additional funding in form of loans from lenders.

Why Does a Good Business Credit Score Matter?

Here’s why a strong score is essential:

• Loan Approval and Rates: Lenders view a high credit score as an indicator of lower risk. A good credit score can help with loan approval, getting better interest rates as it gives you an option to negotiate interest terms. On the other hand a low credit score will increase chances of the loan request getting rejected, higher interest rate being charged which makes borrowing expensive for the MSME.

• Access to Capital: Business loans are not the only available option for funds and a higher credit score can give the borrower other options like credit line, machinery loan, working capital loan, business credit card, unsecured commercial loan, small business loans, instant business loans etc which gives the MSME owner more flexibility in choosing the right option among many.

• Favorable Vendor Terms: Most lenders give out discounts and offers to MSME’s with a higher credit score as the lending risk is much lesser when the borrower has a good credit score. Discounts on interest rates is definitely in your favor and as an MSME owner you shouldn’t miss an opportunity to avail such discounts.

• Investor Confidence: When seeking investment, a good credit score portrays your company as financially sound and reliable. This can make you a more attractive proposition for potential investors.

How Can You Quickly Improve Your Business Credit Score?

Now let us look at some ways in which you could improve your current business credit score and increase your chances in getting your MSME loan disbursed against your application.

Establish Business Credit: It is important to keep your business finance separate from your personal finance. As a first step, get yourself a Business bank account and an (EIN)Employer Identification Number If yours is a new business.

Pay Bills on Time: One of the very basic yet important things an MSME can do in it’s own favor business loans is pay their outstanding bills on time as it is one of the most important variables that impact your business credit score. Not clearing invoices from vendors on time will affect both credit score and business reputation.

• Establish Business Credit Cards: A common mistake made by business owners is getting themself multiple business credit cards. This leads to overspending in most cases as not every MSME keeps track of how they use credit cards. Limiting your business to a single credit card is recommended for efficiency in tracking credit card expenses and paying back the credit card bills on time without failure.

• Become a Trade Creditor: Establish trade credit by purchasing supplies or services on credit terms from vendors who report to business credit bureaus. Consistent on-time payments to these vendors will contribute positively to your score.

• Build Business Relationships: Develop strong relationships with lenders and suppliers. Positive trade references from these entities can be factored into your credit score by some bureaus.

• Monitor and Dispute Errors: Regularly check your business credit reports for inaccuracies. Dispute any errors promptly to ensure your score accurately reflects your financial health.

Benefits of a Strong Credit Score for Business Loan Applications

What are the advantages of having a higher and strong business credit score when applying for a collateral free business loan ? Let’s find out:

• Increased Loan Approval Rates: Lenders like it when the risk percentages are low for the loan repayment and that trust comes to the lenders when they see that the business credit score is high.

• Lower Interest Rates:You can negotiate with the lender/lenders when you have a better credit score. As you are seen as a trustable and stable business with your credit score. The trust factor helps in getting discounted interest and terms.

• Better Loan Terms: A good credit score can qualify you for more favorable loan terms, such as longer loan repayment periods or smaller down payments. This can improve cash flow and make repayments more manageable.

• Faster Loan Processing: The time required to process the loan also decreases when your business credit score is high. Since the MSME is already seen as a trustable business the process can be smooth until loan disbursement.

Conclusion

We could conclude that to be able to borrow funds for your MSME it is very important to have a high business credit score. As the loan applications are subject to approval and credit scores have a key role in the application approval businesses should prioritize improving and maintaining their business’s credit score. Among different lenders NBFCs would be the best lending option for an MSME as they give more flexibility for the borrower than other institutions like banks. Your MSME’s growth is in your hands and building your credit score to ensure funds on time should be a high priority at all times.