Despite having limited capital and resources, small businesses make a dynamic part of the Indian economy. Considered to be innovative and competent in many sectors, SMEs (Small and Medium Enterprises) have seen tremendous growth over the last couple of decades. In order to stay ahead and grow with time, numerous small businesses look for monetary aid from banks and NBFCs. Before rejecting or approving a small business loan application, lenders carefully look at the applicant’s credit score.
Several factors play a crucial role in determining an SME’s credit score, including the company size, credit history, industry risk, public records, and credit utilization ratio. A higher credit score indicates that the business is doing good, therefore it has a higher chance of getting a Business Loan. However, maintaining a high credit rating is not that easy. Here are a few steps you can take to maintain a high credit score for your SME.
Make Your Payments on Time
Your payment history towards creditors is a determining factor to calculate your credit score. For a high credit score of more than 750, you must always pay your due amounts on time. On-time payments always have a good impact on your credit rating.
Take Time to Build Your Credit
Your credit history’s length plays a vital role in your business credit rating. The longer history you have, the higher the credit score you can maintain. The sooner you begin building your business credit, the better it would be for you.
To build your credit, another factor you have to consider is the credit utilization ratio. It is another important thing that credit bureaus examine while calculating your credit score. So, even if not necessary, use your credit card and other credit lines regularly without maxing them out and repaying them on time.
Keep Your Information Updated
There are more than credit bureaus that collect data and generate credit reports. Each bureau has a different way of calculating a credit score, due to which credit report from one bureau may be different from the other. Since you don’t know which bureau your lender will check, it’s best to keep your information updated in all the records. Update details like the number of employees, years in operation, and financial statement regularly. The more up-to-date your credit profile is, the higher the credit rating you are likely to maintain.
Keep Your Public Records Clean
Apart from credit history, you also need to keep your credit report clean from any public records like liens, judgments, and bankruptcies. Such records stay on your credit report for up to 10 years and harm your credit rating.
Borrow from a Lender Who Reports to a Credit Bureau
Your repayment history is a determining factor to break or make your credit score. However, if you borrow from a lender who does not send records to a credit bureau, you won’t see any difference in your credit rating whatsoever. If you intend to build your credit with your business loan, ensure that the lender reports to a credit bureau.
So, these are some important steps that can help a small business maintain a high credit score. Check your credit score here and know where you stand. Clix Capital is one of the most reputed business loan providers in India. If you are looking forward to applying for a Business Loan of up to ₹ 50 lakhs from Clix Capital, attain a high credit score first, and maintain it using the steps above.
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