Business credit

How do credit scores affect business loan approval?

Apr 05, 2024

Every year hundreds of startups are established. However, only 10% of those are able to survive and become full-fledged businesses. The main reason for this high business mortality rate is funding.

Along with a smart idea, business functioning and the capital to run the company is essential to actually mark standing in the market. This is where funding schemes like business loans and credit come into the picture.

These schemes have some eligibility criteria and financial position requirements that a business must fulfill in order to get a loan/credit. So, it is no new information that the most important deciding factor is a business’s credit score.

What is a business credit score?

A business credit score defines the creditworthiness of the company. Basically, it helps in judging whether a business is a good fit to be loaned money.

A good credit score means that the business is punctual with its interest payments and repayment. This would help it present a shining impression in the market, attract investors and also make it a good candidate for future loans. The situation goes vice-versa if a business has a bad credit score. 

Why should businesses have a good credit score?

Let's start with the basics: a good credit score means depicts the sincerity and credibility of your business. Stakeholders, customers, and other investors will always hold a good impression of your business. This will help you to attract investments for the future.

Plus, if you decide to take up more credit, your application will be easily accepted. Along with this your business’s financial stability and reliability increase. 

Further, a good credit score can also help you negotiate the terms of credit. Extended repayments period, flexible financing terms, and favorable interest rates can all be negotiated.

Adding to this, your relations with the suppliers will also be beneficial. When the vendors see that your business trustable, they will easily extend purchase credit and offers to your business.

A good credit score is like your ticket to all beneficial schemes and tools that help a business grow.

How are credit scores calculated for a business?

To calculate your business credit score, the following details or documents are required: registration documents, credit, and payment history, debt usage, company size, annual revenue, and industry risk.

One of the most important factors in the credit score calculation is payment history, as it determines whether you pay your debts and interest on time or not. Business credit scores are also affected by how long your company has been in the market.

Higher credit scores can be achieved the longer you stay in business. Debt usage is considered to check your business’s expense patterns. In other words, to see how the company is utilizing the credit and what profits were generated from it. 

Importance of credit scores in business loan approval

Your business will need funding every now and then for different purposes, such as equipment purchases, investment financing, working capital requirements, etc.

Hence maintaining a good credit score is important to get approval for any business loan.

Here are some reasons why a credit score is important:

1. Higher credit amount

For purposes like factory/machinery purchases, cash flow challenges, etc., a huge amount of investment is needed.

If your business has a good credit score, any institution would easily approve your application for a credit amount extension or a higher loan amount. This is because a favorable credit score would portray your business’s credibility and punctuality of repayment. 

2. Flexible repayment cycle and lower interest

Any credit lending institution would undoubtedly lower the business credit interest rates for companies with a high credit score. The institutions might even work to adjust a repayment cycle that suits the borrowing business.

All these facilities would be provided because a substantial credit score indicates that there is no risk in lending your business money.

3. Speed of approval

With a good credit score, not only does your application get approved, the process gets completed faster. This is because the credit score has already created an identity for your business; hence documentation and eligibility checking will just be a mere formal requirement. 

Also check out our article to know the ways to get business loan without collateral in Australia.

How to improve your business credit score


Maintain low business debt levels

Credit cards, business credit lines, and other types of loans are all liabilities for your business.

The more loans your business has, the lower the chances of acquiring credit when it is actually required. Lending institutions will naturally become hesitant and extremely strict with the credit process.


Check and analyze credit reports

Make it a religious practice to check and analyze the company’s credit reports in fixed intervals. This will help you identify mistakes and any other details which were overseen the previous time.

You will have the space to rectify the errors and also make more prudential decisions related to further borrowing requirements. 


Pay business bills on time

One of the most essential ways to maintain a good credit score is by paying the business credit card bills, loan EMIs, and any other kind of interest payment on time. This shows how punctual and well-organized your business is.

Late payments and lousy repayment behavior will have a highly negative impact on your credit score.


Low credit balance

When your business takes a loan, make sure to use only 30% of the total amount. For example, your business borrows $200000 in an OD account, so either use only $140000 or withdraw this amount first.

You must then repay the $140000 and only then withdraw any further. Any further than 30% would start to impact your business credit score negatively.

How can Volopay help businesses with a flexible credit line?

Now that you have all the essential information required to get a business credit line let us present to you a smart and very affordable credit line option: Volopay! 

Volopay is a holistic financial management software that offers a flexible business line of credit that can help your business solve many different kinds of issues. The credit approval process on our platform is pretty quick. Just a few basic documents and identity proofs are required.

Volopay credit is flexible, fast, and can be availed without any personal guarantees. You can set a customized repayment cycle and also get a higher amount of credit in comparison to the other lenders in the market.

All this, backed with the management features of Volopay, is your best deal to stay on top in your industry.

Boost your cash flow with interest free line of credit