Business Credit Score: What You Need to Know

Running an SME? At some point there will come a time when you will need to demonstrate your business credibility.

Your creditworthiness, business management, and risk. It is possible that you require capital to purchase new inventory, engage in expansion plans, to employ new staff or just maintain cash flow. Perhaps you’re negotiating arrangements with a new supplier and need more time to pay invoices. Maybe you’re bidding on a new contract and your prospective client wants to understand how stable you are before handing you their business.

A business credit score validates your business resilience and as a result, offers opportunities for growth and security.

Why is a business credit score important for SMEs?

If you have a mobile phone contract, a hire-purchase car, or a mortgage, you realise the importance of having a good credit score. It is the measurement of your credit worthiness and risk to the lender. It is the driving force behind consumer borrowing rates, contract terms and other dependencies. Your business credit score is like consumer credit, and B2B lending operates on similar principles.

To demonstrate performance, large businesses work with global credit assessment organisations; their finance team and specialists deliver these processes, resulting in a credit score that keeps the flow of finance moving. The same credit assessors could be used by smaller businesses to show their financial health. However, it is expensive, and only a select few are able to use it and handle the copious paperwork.

Traditional credit scores are not updated in real-time, so SME’s find it extremely difficult to establish their reliability and creditworthiness. The report often lacks the most recent data and fails to demonstrate strategic growth or investment decisions like product expansion or talent development. As a result, it is unsurprising to find that one in five SME loan applications are denied (Statista, 2022). despite accounting for three fifths of employment and more than half of turnover in the UK private sector (Gov UK, 2021).

How does Credit Passport help micro and small-medium business?

SMEs have a much more difficult experience when it comes to proving that they are a viable business, and not always show a real-time and comprehensive credit history, for example if they are a start-up. This is why we developed Credit Passport. We understood that there was a need, and by harnessing open banking technology, we created an industry-recognised measurement of financial quality to level the playing field for SMEs.

We have made it easy and straightforward for any business to understand their score and be aware of their financial situation. Credit Passport is a clear, straightforward view, as simple as the energy efficiency scale, where your business credit score can range from E to A++, or red to dark green.

SMEs benefit in two ways:

1. Credit Passport reflects the same rating system as large banks, in line with international banking regulations. This makes it easier for lenders to assess the likelihood of a business being unable to pay its debts within 90 days, from the date of the score. This means that lenders can set appropriate loan rates and have confidence that they will be covered.
2. The Credit Passport badge shows banks, partners, suppliers and customers that your business is financially healthy. This can help boost your business and your brand, as well as potentially improving your score over time.

How does Credit Passport score SMEs?

Credit Passport utilises open banking data to create a credit score and provides a clear picture of your business. It includes:

• Company background information
• Company financial data
• Potential risk factors and business credit score
• A brief history of banking, trade, and collection
• List of judgements, liens, and bankruptcies
• Uniform commercial code filings
• An overview of your liquidity status

For small or medium-sized business owners, it’s important to understand how their credit score is determined. It is influenced by a number of variables, including the company’s financial history, capacity to repay prior loans and borrowings, and track record of on-time payments. Credit Passport also considers the cash flow management and current exposure to the financial system via linked bank accounts. Keeping track makes it possible to improve business credit ratings and increase the likelihood that you'll be approved for financing in the future.

Key aspects that could have an impact on a business' financial assessment include:

• Size and age of your business
• Industry
• Repayment history if your business has borrowed before
• Amount of credit currently available to your company
• Number of past applications for finance (and whether you were approved or denied)
• Trade credits you may have secured
• Existing company accounts
• Details of ownership
• Outstanding County Court Judgements, if any
• The amount of liquidity in your bank accounts
• If you manage your finances well
• If your business is showing positive or negative signals

Does Credit Passport affect business credit score?

No, Credit Passport simply records the data that already exists regarding any business. The credit score provided by Credit Passport does not alter any credit history data a company’s. Instead, the purpose is to help businesses gain a better understanding of their financial situation to make improvements if necessary and access exclusive services. Additionally, it can help understand how banks, lenders, and financial institutions view a business when applying for credit or other financial services.

Next in this blog series:

1. The Benefits of Monitoring Your Business Credit Score (PLUS PLAN)
2. Instant lending
3. Embedded Finance