Business credit is comprised of all the money that a business can borrow from creditors, including the banking system, credit card companies, credit unions, leasing companies, and traders (trade credits). On the other hand, bank credit is the total funds that a business can get from the banking system alone. Bank credit is a subset of business credit.
The bank credit score or rating is the average minimum balance that a business retains in a business bank account over a three-month period. Some of the bank credit ratings are as follows:
Ø A balance of $10,000 is rated as a low-5
Ø A balance of $5000 is rated as a mid-4
Ø A balance of $999 is rated as a high-3
Ideally, a business should always aim to maintain a bank rating of low-5 (an average balance of $10,000). That is because if it does not have a rating of at least low-5, most banks will assume that the business is a risky borrower and has little to no capacity to repay loans or lines of credit.
Although bank credit scores are numbers that you may never see or even be aware of, they influence the possibility of getting credit from banks. Here are some mistakes that businesses make and end up lowering their bank credit score, thus messing up their chances of getting funds:
- Lack of consistency in account name, address, and phone number
A business owner needs to ensure that their business bank accounts are reported similarly between all of its records. The physical address and phone number must be the same. It is also critical to ensure that every credit agency and trade credit vendor records the business name and physical address uniformly. This also applies for other entities like those who keep financial records, web addresses, and e-mail addresses, those who handle income and sales taxes, those who do directory assistance, and many others. Consistency is vital here. When lenders are considering the creditworthiness of a business, they will not take time to consider the different ways a business may be listed, and without finding what they need easily, they will just reject the application or will not share the information with credit reporting agencies such as Dun & Bradstreet and Equifax.
- Failure to show responsible account management
Responsible management of the bank account is a duty that each business must embrace. As such, it should avoid issuing non-sufficient funds (NSF) checks as this damages the company’s bank credit score. Having overdraft protection is a good way to take care of NSFs and the resultant charges in case a check is issued while the bank account has insufficient funds.
But can a business get an overdraft with a poor credit score? Well, it is hard. The business can work on improving its credit score through various methods including engaging credit repair experts who will help to get favourable trade lines that can boost the score of the company. Such businesses can check out https://www.booostcredit101.com/ to get in touch with one of the best companies in credit repair and restoration.
- The business is not attaining the minimum balance or maintaining it long enough
Bank credit score gauges the ability of a business to repay its obligations promptly, so a business must maintain a minimum balance for no less than three months. A minimum of $10,000 is what each business should endeavour to keep since the ability to borrow in each cycle depends on the rating during the preceding three-month period.
- Failure to make regular and consistent deposits
Banks are more inclined to lend to businesses that deposit consistently into their accounts. Regular deposits are a necessity to have an impressive bank rating. It is noteworthy that a business must make many consistent deposits that need to exceed the withdrawals to get and keep a good bank credit score. A great score enables a business to access business loans.
- Failure to keep a positive cash flow
There are no two ways about it: a business must portray a positive cash flow to have a good bank credit score. Positive free cash flow means that the funds getting into the account exceed the amount flowing out. A positive free cash flow represents the amount of revenue that remains after a business has settled all of its expenses. This is the amount that a business can generate from a given investment to retain or expand its asset base. It is an indicator of a company’s financial health and performance.
A business must have a good bank credit score to get loans from the banking system. To get and keep a good bank credit rating, it needs to maintain a given minimum balance in its bank account, avoid issuing non-sufficient fund checks, and ensure that its name and physical address, as well as other key details, are consistent across all the platforms and entities.
