When you first start out in business, having access to finance will be fundamental to your success. And being able to borrow funds, or attract investment, will be dependent on you having a good business credit score and a healthy credit profile as a business.
But having a good credit history can be tricky when you’ve only just begun trading.
Let’s explore how you can build up your credit profile as a start-up.
Why is your credit profile important?
Funding is key to getting your startup off the ground. Banks will lend to you and private equity investors will put money into the business – but only if they see the business as viable.
In short, lenders and investors want to be confident that you’re a low-risk prospect, with viable income streams, good cashflow and the capability to repay the loan, or deliver a return.
Your credit profile lists your credit history, payment history and your public financial records, to give an overview of the general creditworthiness and risk level of your business.Key factors that affect your credit profile
Your credit profile evolves over time, along with the business. And your overall business credit score is not static. By being responsible with your use of credit facilities and your overall financial governance, you can improve your credit score and open up more routes to funding.
Here are some ways you can grow your credit profile as a new start-up
Pay your suppliers and debts on time:
Always pay your bills, invoices and loans before their due dates. This demonstrates that you’re reliable and financially responsible, factors that are heavily weighted by credit reporting agencies (CRAs) and lenders when assessing your business’s creditworthiness.
Keep your credit utilisation ratio low:
Don’t use the full amount of credit that’s available to you. A high credit utilisation ratio can signal financial distress, so aim to use well under 30% of your available credit limit. Keeping this ratio low, shows you’re responsible and can have a positive effect on your credit score.
Don’t apply for multiple lines of credit:
Applying for multiple lines of credit or loans in a short period can be a major red flag to lenders and CRAs. Each application can result in a hard inquiry on your credit report, which can temporarily lower your score. Only apply for credit when it’s genuinely needed.
Get a business credit card and use it responsibly:
Using a business credit card for regular, manageable expenses, then paying off the balance in full each month, builds a positive credit history. This credit history is separate from your personal credit score and demonstrates that the company can manage its finances and credit well.
Keep your debt-to-equity balance healthy:
Make sure the business isn’t overly reliant on debt compared to its own equity. A balanced capital structure is a good sign of financial stability to lenders, showing that you have a strong financial foundation to support your obligations and future growth.
Keep your financial records and filings up-to-date:
Make sure you’re updating your financial records, statutory accounts and company filings (like those with Companies House in the UK, ASIC in Australia or NZCO in New Zealand). This makes it easier for the CRAs, lenders and investors to access your public records, check for good governance and form an opinion on your creditworthiness. Talk to us about building a positive credit profile
A good credit profile acts as the foundations for your finance strategy, putting you on solid ground to reinvest in the business and begin the next stage in your start-up growth.
We can help
Come and talk to us about other ways to improve your business credit score, sure up your finances and get the funding you need to bring your strategy to life.