Getting approved for a loan opens up a new line of finance for your business. But before you can get that approval, you need a good business credit score.

Your business credit score is a measure of your business’s ability to manage debt and keep up with your finance obligations. Having a good score can be the difference between getting the funding you need, and being turned down by your lender. So, understanding your score, and the factors impacting it is vital.

What is a business credit score?

The goal of a business credit score is to measure how much risk you present to a lender by aggregating information from your history to see how you handle bills, payments and debt.

Banks, lenders and alternative finance platforms want to know that you can repay the money they lend you. They want to see solid financial health in the business, a good history of repaying credit and a professional attitude to managing any money you owe.

Let’s see how lenders find the information to make informed lending decisions:

• Credit reporting agencies:  Lenders refer to the business credit scores published by credit reporting agencies (CRAs) when making decisions about lending. In the UK, there are three major CRAs: Equifax, Experian and TransUnion. There are also credit bureaus, like Dun & Bradstreet (D&B). 
• Financial, credit and industry data: The CRAs gather data from a variety of sources to decide your business credit score. They’ll review publicly available documents like company accounts and county court judgments (CCJs), data from credit applications, historic payment information and more general information relating to your industry or business sector.
• Your current business credit score: Based on the available data, the CRAs will give your company a rating. This business credit score is not a static metric. Your score can go up, or down, depending on your payment performance, your financial success as a business and the overall external health of your industry.

Is a personal credit score the same as a business credit score?

You may already know your personal credit score. If you’ve taken out personal finance or applied for a mortgage etc. then your creditworthiness will have been measured.

However, this is a measurement of your personal risk as an individual. Your company will have its own business credit score, based on the company’s payment performance, credit history and industry sector.

Your personal credit score will only be factored in if:

• You’re a founder applying for funding to start a brand-new business
• You’re providing a personal guarantee to secure a business loan.

What is a good business credit score?

A ‘good’ business credit score is one that rates you as low risk to the lender. There are different scales in use, but the higher your score, the lower your perceived risk. 

Let’s explore how these credit score scales work:

• Different CRAs use different scales: Credit reporting agencies and bureaus all use different formulas and scales to analyse and measure business credit risk. Some use a 0 to 100 scale, others use a 0 to 1000 and some use a 300 to 850 scale. It’s important to know which scale your chosen CRA is using (see the table below for more information)
• Using the FICO or VantageScore 3.0 score: FICO and VantageScore 3.0 are two different methods that CRAs and lenders will use to work out your credit score. They look at different metrics and data to come up with the final score, but both generally use the 300 to 850 numerical scale. VantageScore 3.0 has the advantage of being available through all three major CRAs in the UK.
• Knowing if you’re high, medium or low risk: Your score will determine whether a lender sees your business as high risk, medium risk or low risk. Banks, lenders and finance platforms are more likely to lend to a low-risk company. If you’re seen as high risk, this may jeopardise your chances of accessing finance and taking out loans. 

Let’s look at some good, fair and poor business credit scores. Note, these definitions are the ranges given by the agencies themselves – though individual lenders may interpret them in their own way, either offering more or less leeway depending on their risk models.

Why does a good business credit score matter?

The underlying importance of your business credit score is the impact it has on your ability to borrow. 

A poor credit score can severely limit your options when approaching lenders. A good credit score shows you’re creditworthy and a low-risk option for lenders. This usually means larger loan amounts will be available, and on better terms. 

Here’s a breakdown of the areas where a good business credit score is a must:

• Getting approved for a loan: banks and lenders will review your credit score whenever you apply for a loan or additional finance. These lenders need to be confident that you’re creditworthy, have a good credit history and habitually pay your bills on time. 
• Interest rates and repayment schedules: your credit score will also affect the rate of interest you’re charged on the loan. The better your credit rating, the lower the interest rate and the longer you’ll be given to repay the loan. Low-to-medium-risk businesses will, ultimately, end up paying more in interest and having to repay the loan over a much shorter timeframe.
• Vendor and supplier relationships: agreeing credit arrangements with your suppliers is a great way to make your cash flow go further. But your supplier will want to see a good credit score before they agree to any trade credit. This helps them remove any worries around you failing to pay within the terms.  
• Leasing property or equipment: if you’re taking on new equipment and assets, those vendors will be keen to know that you’re low risk and have excellent payment performance. A good credit score can open up your ability to invest in equipment and bring the next stage of your business strategy into play. 

A good credit score gives you improved access to flexible, affordable funding options – and that’s vital as you grow and expand the company.

What credit score do you need to get a business loan?

The business credit score you need for a successful loan approval will vary. It depends on which CRA or bureau is providing the score, and the scale they use, as well as the lender’s own criteria. However, the main focus is on achieving a score that marks you out as a low-risk borrower. 

Using a 0-100 scale, as used by Experian, this is how that looks:

1. Low Risk (Good Credit Score): If you achieve a business credit score of 80 and above, you’re seen as highly creditworthy. This makes it likely you’ll be approved for a loan. You’ll be offered larger loans and bigger credit facilities.  Any lending will also be on more favorable terms, with lower interest rates and longer repayment periods to make borrowing an easier prospect.
2. Medium Risk (Average Credit Score): A score of between 50 and 79 makes you a medium risk to the lender. It doesn’t rule out you getting the loan, but it may affect the amount that can be lent and the terms. Interest rates will be higher, for example, and shorter repayment schedules will be needed.
3. High-Risk (Poor Credit Score): If you’re scoring between 50 and 40, you’re likely to  face significant challenges securing loans or credit. Lenders see you as a major risk and will be wary of you defaulting on the loan. If a loan is approved, your high risk rating will result in high-interest rates and extremely short repayment terms. 

Is your business credit score the only metric lenders are concerned with?

Your business credit score is an important metric. But it’s not the only measurement that lenders are interested in when you apply for a loan or credit. 

There are other financial and industry checks that come into play, especially if you’re applying to a modern business finance platform, like iwoca. 

When you apply for funding, we’ll also look at:

• Cash-flow analysis: With a direct integration to your Xero or QuickBooks accounting software, we’ll have data relating to your cash position, cash inflows and outflows, sales volume, invoice history and payment patterns. This overview makes it easier to assess your ability to repay the loan.  
• Bank statements: Your bank statements provide crucial information re your income, expenses and overall financial health. You can share these statements directly with the lender. If you have a Xero/QuickBooks integration, all your bank statement information will already be available through your bank feed. 
• Business performance: Your company's trading history is also a vital element. Factors like the age of the business, your historic revenue growth and profitability, and the size of your customer base will all help to judge your viability as a business and a borrower.
• Industry trends: external trends and market conditions in your industry can have a significant impact on your borrowing. For example, if you’re a construction business, costs are high and margins are small. This may well limit your ability to borrow large amounts of money. 

How to improve your business credit score

Your business credit score is not static – with attention to key areas of your business performance and some good financial hygiene, you can take steps to improve your creditworthiness and boost your credit score in the eyes of the CRAs, bureaus and lenders. 

Steps you can take include:

• Paying your bills on time to build a positive payment history.
• Keeping your credit utilisation low and only using the money you need.
• Monitoring your credit report for errors and correcting them.
• Establishing trade credit with suppliers that report payments to agencies.

Subscribing to a monthly credit reporting solution is a sensible idea. You can monitor your metrics over time, see your progress and take action to hit an 80+ credit score. 

You can find out more about building business credit and improving your business credit score.

Growing your business with an iwoca Flexi Loan 

At iwoca, your credit score is just one element of our lending decision process. We’ve helped over 150,000 UK SMEs achieve their goals with our flexible finance. Unlike high street lenders, we’ll look at your overall business performance, alongside your business credit score, to get a full picture of your business health.

Once reviewed, we can approve you for a loan in a matter of minutes. 

Our Flexi-Loan lets you borrow £1,000 - £1,000,000 to bridge cash gaps, grab business opportunities or just keep cash flow smooth.

• No early repayment fees
• No paperwork
• Money in your account in as quick as 2 minutes 37 seconds (our record)!
• From 1 day to 60 months to repay the loan

Get a business loan with iwoca