We are all aware of the effect that bad credit can have on your personal finance applications, whether it is a car loan or a mortgage. So how important is a good credit score when applying for business finance? Are the personal finances of the owners considered and how do they assess whether the business is worth lending to?
You probably won’t be surprised to hear that there are credit reference agencies for businesses, just like there are for individuals. In fact the two most famous of these credit reference agencies evaluate both personal and commercial customers. These agencies carry information and statistics on the performance of your business and produce a risk score for lenders to consider. They will also advise what the credit limit or contract limits should be and many lenders will rely on this data when considering business loan applications often without the customer knowing if the information is accurate.
What information will credit agencies review?
There are generally three types of data that credit agencies use:-
Positive data - such as how long the business has maintained an account, past borrowing that has successfully been repaid and the current status on other credit facilities.
Negative data - this includes late or missed payments, defaults and multiple applications for credit in a short period of time.
Warnings - which will mostly consist of County Court Judgements CCJs and insolvency notices. Very often banks will not lend if such entries are on the credit file – even if the debt has been repaid.
There will also be business cash flow information that could affect your credit score, these are varied but the most common are:-
- Paying credits into your account irregularly or having periods with no credits whatsoever.
- Going overdrawn without a limit or going over your agreed limit.
- Running an overdraft continuingly. This could be considered a sign of not managing cash flow effectively.
- Issuing cheques with insufficient funds in your account.
Unexpected hurdles to your business finance
What you might find surprising is that if you apply for a business loan from a high street bank, and you have a personal account with that bank, this could also be considered as part of the assessment for business borrowing.
As mentioned above, there are many hurdles that could harm your chances of securing finance for your business. It is somewhat frustrating that you may not know why a loan request has been refused and if, as a result of a refusal, you have to apply with a number of lenders, this could have a detrimental affect on your score.
Alternative lenders don’t always require a good credit score
At Cashsolv we prefer to work with you to understand the issues being face without relying on the information from credit reference agencies. With our background in assisting companies overcoming financial difficulties and with no requirement to answer to any investors, we are able review the overall commerciality of the loan based upon its merits.
Our assessment of your loan proposal will not leave any footprints with the credit reference agencies and we don’t ask for a complete breakdown of your personal affairs. You’ll get a fast, commercial decision based upon the nature of your business and the reason provided for the borrowing.