Business Credit Scoring: Raising your Profile

Monday September 26, 2016

The old days when the only way to pump some cash into your business was to crawl cap-in-hand to a stone-face bank manager are long gone. Still, there's probably going to be a time when you're on the hunt for finance - and traditional lenders like banks aren't likely to be as excited about your new so-crazy-it-might-just-work scheme as you are. You aren't going to wow them with t-shirt stretch goals like the crowdfunding crew, or with bold, face-to-face multimedia pitches like the Dragon's Den brigade. Yes, the banks are probably going to want to know what you'll do with their money. More importantly, though, they're going to want you to prove it's in safe hands.

This is business credit scoring's we're dealing with. It's not about getting people energised about your enthusiasm and drive to succeed. You've already proven that point by showing up to play the finance game. This is about shining a cold, hard light on the way you handle your money. It's clinical, it's dispassionate and it's absolutely essential that you take it seriously.

A business credit rating starts with you. The banks want to know about your personal financial history before they even consider looking at the application you're making. Whether they're checking up on you or your business, they'll generally be keeping an eye out for the same basic information. They'll want to know things like:

  • What kind of finance you've got already, and what you're asking for now.
  • How much total debt you've got.
  • How reliable you are at making repayments.
  • How often you go looking for finance.

There are a few common traps to avoid here. For instance, weirdly enough, it can actually damage your credit rating if you make a lot of finance applications at once. On the other hand, a long credit history can be good or bad, depending on how you handled it.

What the banks are doing here is deciding how much they can trust you and your business to keep their money safe. They'll be looking you up on the Electoral Register and at Companies House. They'll be checking if you've got any County Court Judgements or bankruptcy orders against you. If you've borrowed before, or are doing so now, they'll be very interested in how that went. At the end of the process, you'll have a score based on everything they can find out about you. That score is either high enough to approve your finance application, or it isn't. It won't matter how much they like you or how terrible they think your business idea is. It you've got the points, the money's yours. If you haven't, there's nothing you can do to change their mind.

You're not completely at the mercy of a jealous, vengeful banking god, though. There are still plenty of things you can do to get your credit score where it needs to be. Most of them are pretty obvious, but you do have to keep on top of them so they're still worth spelling out:

  • If you're borrowing, make your payments on time.
    Sounds simple, but a lot of businesses lose their footing here.

  • Stay within your means and approved overdraft limits.
    Good cash flow makes all the difference here.

  • Don't cut corners with Companies House.
    File full, rather than abbreviated accounts.

  • Keep your banking clean.
    Use your business bank account for business and nothing else. Keep your business' money out of your personal accounts.

  • Know what you're asking for.
    Make sure you know the terms of the finance you're applying for. Don't try to bite off more than you can chew.

  • Be visible.
    Make sure you're on the Electoral Register. They're going to be looking for you, so make sure you're easy to find.

The last thing to remember is that you've got other options if the traditional lenders don't work out for you. If you get rejected, the bank will let you know where you fell down, so you'll know where to tighten up next time. There are lots of reasons why a bank might slam its door in your face, and not all of them are down to a bad credit rating. Traditional lenders sometimes don't understand new kinds of business, and can be slow to react to new ideas. If you're having no luck going the traditional route, then Alternative Finance might be a better way forward.

As always, you can talk to RIFT Accounting for detailed, specific advice on improving your credit score or finding finance. Give us a call or email for help, and keep your ear to the ground for more Voices from the RIFT...

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