As an established small business owner, you know that scaling from a good to a great business requires healthy and consistent cash flow.
There are instances where even the most profitable businesses could use extra funding to unlock greater success.
In these cases, obtaining funding is easy with a healthy business credit score.
If funding is the doorway to a new level of growth in your business, a healthy credit score is the key.
Even before you start applying for business funding, you need to ensure that your credit score reflects the financial health of your business and perform regular business credit score checks.
Funding is available from various lenders, but they are all going to check your business credit score before approving your application.
In this article, we take a close look at what a business credit score is, and how to improve and maintain it.
We also delve into business credit reports and why aiming for a higher credit score will position you to be approved for funding when you need it most.
What is a Business Credit Score?
A business credit score is a number that represents your business’s creditworthiness.
Every credit bureau has its own unique credit score range, but generally, the higher your score, the better.
Lenders use this score to assess a business’s ability to repay a loan within a set timeframe.
When calculating a credit score, various factors are considered, including a business’s borrowing behaviour, repayment history and other financial obligations as recorded by the credit bureau.
Information about trade credit, loans, overdrafts and other credit facilities held in the business’s name is also taken into account.
Bureaus like TransUnion, Experian and ClearScore provide access to business credit scores.
Knowing your business credit score empowers you to take action. If it’s low, you can take steps to improve it, and if it’s high, you are in a good position to apply for funding.
It also means that if there have been any data miscalculations, you can address these in good time with the relevant bureau and lending institutions.
Every business is entitled to one free credit report every year.
Reviewing your credit report is considered best practice and is a necessary step to maintain or improve your business credit score.
Maintaining a healthy score is important because it’s a measurement of your company’s financial health.
It also directly influences access to better terms with suppliers and, in some cases, contractual opportunities with larger businesses.
The difference between a personal vs business credit score
Where a business credit score is determined by the credit data of a business as supplied by a credit bureau, a personal credit score is the credit rating of an individual.
A business credit score focuses on credit extended to a company, like business loans, overdrafts and supplier credit.
Personal credit scores indicate how an individual repays their personal loans, credit cards and retail accounts, and fulfils their other financial obligations.
In the SME context, a blended scoring model is used where both the credit rating of the business and the director (or directors) of the business are taken into account before access to funding is granted.
How your credit score impacts business funding eligibility
Personal financial behaviour is a good indicator of how business obligations are managed. In the case where SMEs are closely tied to their owners, especially in the early stages of the business lifespan, a blended scoring model shows lenders a comprehensive view of the risk involved with funding a business.
A poor personal credit score can have a negative impact on eligibility. Conversely, the risk level is lowered if personal credit accounts are in good standing.
As Garth Rossiter, Chief Risk Officer at Lula, notes, keeping a clean credit record and a good credit rating for your business and for directors personally is one of the central principles for ensuring eligibility for funding.
“The easiest way to do this is ensuring you don’t miss any repayments on any credit you currently have. Keep good financial records and have a solid understanding of your business and the market in which you operate,” advises Rossiter.
When eligibility for funding is considered, lenders typically review repayment history, current debt levels and length of credit history, along with any possible adverse listings.
A low score can have a negative impact on accessibility to funding or result in higher repayment costs, whereas a higher score indicates lower risk because of better financial management.
Consistency, regular repayments, stable cash flow, and responsible use of credit facilities all indicate a low-risk investment on the part of the lender. Businesses that maintain these best practices are more likely to receive the funding they need.
At Lula we ensure a holistic assessment process. Inambao Mwimba, Senior Credit Analyst at Lula, cites a misconception that revenue alone is a factor in accessing funding.
Credit ratings are vital, and they are assessed together with information such as transactional data, affordability and credit profiles to determine whether funding can be offered.
Unpacking the Business Credit Report
A business credit report is a detailed record of the credit activity and financial obligations of a company and predicts how the business will manage these in the future.
It is used by lenders, suppliers and other institutions to assess risk before extending funding or entering into business agreements.
Small businesses may need a business credit report when applying for funding, negotiating and extending terms with suppliers, or reviewing their own financial standing.
In South Africa, business credit reports can be accessed through registered credit bureaus that track commercial credit information.
Why do you need a business credit report?
A business credit report enables SMEs to monitor how lenders and suppliers perceive their creditworthiness. It helps to identify any negative listings, missed payments or errors that could affect funding applications.
Regularly reviewing the report puts you in a position to address issues early, correct inaccuracies and take steps to strengthen your credit profile before applying for funding.
What does a business credit report include?
A business credit report typically includes company registration details, credit facilities held, repayment history, outstanding balances and any defaults or judgments.
It may also reflect how long the business has been active and show its borrowing patterns over time.
Some reports also include information linked to the director’s personal credit profile, especially where personal surety has been provided for business funding.
How to Improve Your Business Credit Score Rating
Improving a business credit score requires consistent and disciplined financial management.
One of the most important factors is to make all repayments on time, as payment history carries significant weight in scoring models.
Building a credit record through responsible borrowing can also help, provided credit facilities are used modestly.
As Kamogelo Lekalakala, Credit Training Specialist at Lula explains, healthy cash flow management is equally important. “Seeing where the money is coming from, where it is going, and when these movements are happening is key.”
Maintaining good relationships with suppliers and lenders, including honouring agreed payment terms, supports a positive credit profile.
Factors that influence a credit score include repayment history, outstanding amounts owed, length of credit history, credit mix and how frequently new credit is applied for. Managing these elements together contributes to gradual score improvement.
How to Maintain a Good Credit Score
Maintaining a good business credit score requires ongoing attention rather than one-off actions. Practically, you can maintain a good credit score by:
- Paying all business and personal credit obligations on time, without exception
- Monitoring both business and personal credit reports regularly for errors or adverse changes
- Keeping debt levels manageable and aligned with cash flow capacity
- Avoiding frequent or unnecessary credit applications, which can indicate financial strain
- Maintaining open communication with lenders and suppliers if payment challenges arise
- Separating the management of personal and business finances
- Using credit facilities consistently but conservatively to build a stable repayment record.
Taking these small actions can help you keep a positive credit profile and reduce the risk of negative listings that can limit future funding eligibility.
Opening the Door to Funding
A healthy business credit score is a critical factor in an SME’s ability to access funding. It reflects financial behaviour, repayment reliability and overall risk from a lender’s perspective.
Maintaining a strong score improves the likelihood of approval and can lead to better funding terms.
As responsible lenders our rigorous funding criteria ensures that we extend advances that businesses can manage, and that creates cash flow freedom from businesses that show growth potential.
A healthy business credit score signals a financially sound business that is likely to remain successful.
By understanding how business and personal credit scores are assessed, monitoring credit reports, and managing credit responsibly, you can position your company to secure the funding it needs to grow.
