When faced with the prospect of a recession or global slowdown, it’s important to be in control of your financial position. One way to do this to ensure you have a healthy credit score and you understand your current risk-rating with the credit agencies.
Your business credit score is a measure of how much of a risk your business poses to banks or lenders should you borrow money. When times are tough and cash is tight, businesses can become reliant on external funding and lending. During a recession it is sensible to have options for financing. So, having the option to secure a loan with a sensible interest rate should be something all business owners consider.
If you have a good credit score the 3 largest credit agencies and the main credit bureaus will see you as a low-risk borrower. As a low-risk borrower banks and lenders are more likely to lend lend you money, safe in the knowledge that you're able to make the repayments.
If you have a poor credit score you will be seen as a high-risk borrower. When you approach banks or specialist lenders for borrowing they will need to do further investigations. The results may be lending offered at lower amounts, higher interest rates or lenders coming back to say they wont lend.
If you have a poor credit score there are steps you can take to reduce your risk as a business and make the company a more attractive prospect to banks, lenders and suppliers. This can start with running business credit reports. These reports give you an up-to-date understanding of your credit, your risk-rating and some tips for improving your score.
Here are 4 simple ways to improve your credit score:
Improve your payment performance - credit agencies will look at how long it takes you to pay suppliers and settle your bills, and flag late payments
File your accounts in full - filing abbreviated or micro-entity accounts reduces the amount of information publicly available, which credit agencies rely on
Use the right SIC code - some industries or sectors are automatically labelled as high risk but if you are using the wrong SIC you could be reducing your score unnecessarily
Build greater customer and Supplier relationships - the sooner they pay you, the better and actively manage any late payers before they become bad debts
By doing your best to improve your credit rating, you make it easier to keep your cashflow on track. With improved access to funding and trade credit, you’re ready to tackle the cash gaps and keep the wheels of industry turning in these difficult times.
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