When starting a business, access to finance is fundamental to your success. The ability to secure loans or attract investment largely depends on maintaining a strong business credit score and a healthy credit profile.
Establishing a good credit history can be challenging for businesses that have only recently commenced trading. Let’s examine how you can build a robust credit profile as a new start-up.
Why Is Your Credit Profile Important?
Securing funding is essential to get your start-up off the ground. Banks and private equity investors will provide capital only if they perceive your business as viable. Essentially, lenders and investors seek assurance that your business is low risk, with reliable income streams, healthy cash flow, and the capacity to repay loans or deliver returns.
Your credit profile summarises your credit history, payment record, and public financial information, offering an overall view of your business’s creditworthiness and risk profile.
Key Factors Influencing Your Credit Profile:
Your credit profile develops alongside your business, and your business credit score is dynamic. By managing your credit facilities responsibly and practising sound financial governance, you can improve your credit score and unlock greater funding opportunities.
Here are some practical steps to strengthen your credit profile as a start-up:
- Pay Suppliers and Debts Promptly:
Always settle bills, invoices, and loan repayments by their due dates. This demonstrates financial reliability—a critical consideration for credit reporting agencies (CRAs) and lenders assessing your creditworthiness. - Maintain a Low Credit Utilisation Ratio:
Avoid utilising your full credit limit. A high credit utilisation ratio may indicate financial stress. Aim to use less than 30% of your available credit to show responsible credit management, which positively impacts your credit score. - Limit Applications for Multiple Credit Lines:
Applying for several credit facilities or loans in quick succession raises red flags with lenders and CRAs. Each application triggers a ‘hard inquiry’ on your credit report, temporarily lowering your score. Only apply for credit when necessary. - Obtain and Use a Business Credit Card Responsibly:
Using a business credit card for routine, manageable expenses and paying off the balance in full each month helps build a positive business credit history. This record is separate from your personal credit score and demonstrates effective financial management. - Maintain a Healthy Debt-to-Equity Ratio:
Ensure your business is not overly reliant on debt relative to its equity. A balanced capital structure signals financial stability to lenders, indicating a strong foundation to support obligations and future growth. - Keep Financial Records and Filings Up-to-Date:
Regularly update your financial statements, statutory accounts, and company filings with ASIC or other relevant bodies. Accurate and timely filings make it easier for CRAs, lenders, and investors to assess your governance and creditworthiness.
A strong credit profile lays the groundwork for your finance strategy, enabling you to confidently reinvest in your business and advance your growth plans.
Contact us to discuss tailored strategies for improving your business credit score, strengthening your finances, and securing the funding you need to realise your vision.
