Good Credit Business Loans vs. Bad Credit Business Loans

Having a good business credit score is essential for many reasons. If you have a good credit score, you will be awarded good credit business loans. These loans offer the lowest interest rates, terms, and perks.

What is a Good Business Credit Score?

A business score is like your personal credit score. It can help business lenders determine how creditworthy you are.

Your business score will likely range from zero to 100 and the closer you are to 100, the better your score. The business credit reporting agencies define a good business credit score differently.

  • Experian: An Experian business credit score in the 76 to 100 range is ideal. If your credit score meets this range, you’ll be considered a low-risk candidate.
  • Equifax: Equifax is unique in that it assigns three scores to each business. These scores measure traditional credit risk, payment index, and business failure. In this case, you want a score of as close to 100 as possible.
  • Dun & Bradstreet: Dun & Bradstreet PAYDEXs are between 0 and 100. In their range, anything between 80 and 100 is considered a good credit score.

Good Credit Business Loans vs. Bad Credit Business Loans

To understand the benefits of good credit business loans, let’s discuss bad credit business loans. If you have bad credit, you might have difficulty getting approved for a loan. This is because the lender believes you are going to be able to repay them.

If you are approved for financing, you’re not likely to lock in the rates and terms you desire. You might have to settle for higher interest rate or shorter repayment periods.

In addition, you may have to take out a secured business loan with bad credit. This means you’ll have to back your business loan with collateral such as:

  • Real Estate
  • Vehicles
  • Inventory
  • Equipment

If you default on your business loan, the lender will seize the collateral.

How to Achieve a Good Business Score

It takes time and effort to have a good business score. Once you do, the doors will be opened for you to get good credit business financing. This can give you good rates, terms, and perks that you want. It can also help you save thousands of dollars over the life of your term.

The following tips will help you increase your business credit score.

  • Pay bills on time: if you make late payments or miss them, your credit will go down. Enroll in automatic payments or set calendar reminders so you never miss a payment.
  • Reduce Your Credit Utilization Ratio: Your credit utilization ratio is the amount of credit you use compared to the amount available. Credit reporting agencies will reward you with a higher credit score if your ratio is under 15%. Keep it low by decreasing your spending and paying off your balances.
  • Dispute Errors: don’t forget to check your business credit report often. If you find a remark that’s wrong such as an unpaid account, dispute it as soon as you can.

3 Steps to Take to Find a Good Credit Business Loan

Once you have a good credit score, the following steps will help you find a good credit business loan:

  • Do your research
  • Compare loans
  • Read reviews

The Bottom Line

Good credit business loans have optimal interest rates and terms compared to bad credit loans. They can provide you with the funds you need to cover just about any business expense. Having additional cash flow can help you invest more into your business as well.

Make sure you have explored all your options before you apply for a good credit business loan.