Introduction
For businesses in India, developing a strong credit profile is like laying the groundwork for a solid financial future. A healthy business credit score isn’t just a number—it’s the key to unlocking better lending terms, stronger supplier relationships, and access to crucial funds.
In this blog, we’ll provide straightforward insights tailored to small and medium businesses, highlighting the importance of a good business credit score, addressing industry-wide challenges, outlining strategies to start building credit and offering expert-backed methods to boost your business creditworthiness. Whether you’re a small startup or a medium business, these insights will demystify the world of business credit in India, empowering you to steer your financial journey with confidence.
What is a business credit score?
A business credit score is a numerical representation of your company’s financial health and creditworthiness to assess how trustworthy your business is in repaying debts and meeting financial obligations. Just as individuals have personal credit scores, businesses have their version, reflecting their financial history. It’s influenced by several factors, including your payment history, credit utilisation, length of credit history, public records (like bankruptcies or liens), and the types of credit you’ve used.
Navigating the intricacies of business credit scores can be overwhelming, especially for small businesses. Businesses need to keep a healthy track record of financial statements like balance sheets, P&L, income statements, etc., regularly update their GST info and EPFO data, and stay compliant with regulatory agencies.
Why does your business need a good credit score?
It is important for businesses, especially small and medium-sized, to maintain a good credit score as this is used to define the creditworthiness of borrowers and gain a competitive advantage in the market. A good credit score means the business can be trustworthy and is less likely to default.
Below mention are some important reasons why your business should have a good credit score:
Access to Funding: To extend credit to your business, lenders perform credit risk analysis. A strong credit score demonstrates your ability to manage debt responsibly, making it more likely for lenders to offer you favourable terms and lower interest rates. With easier access to funding, you can invest in growth initiatives, expand your operations, or seize market opportunities.
Better Supplier Relationships: Suppliers often extend credit terms based on your creditworthiness. A good credit score indicates that you’re reliable in settling invoices promptly, fostering stronger relationships with suppliers. This can lead to discounts, extended payment terms, and better negotiation power, which directly impacts your bottom line.
Competitive Advantage – A strong credit portfolio can help your business access immediate working capital when required, leading to better operational efficiency and cash inflows that will pay off the debt in a short time. This will help you gain an edge over your competition
Long-Term Viability: A good credit score contributes to your business’s long-term viability as the credit risk for your business is minimal. As you build a history of responsible financial management, your credibility grows, making it easier to secure larger loans for strategic initiatives and weather economic challenges.
Major challenges small businesses face to improve credit score [With solutions]
Lack of Financial Documentation: Many small businesses may struggle with maintaining thorough financial records such as financial statements, GST payments, and maintaining EPFO details. Without accurate documentation of quarter-wise financial activity, lenders and credit agencies may find it challenging to evaluate your financial health.
Late Payments: Due to inconsistent cash flow and lack of working capital, small businesses may find it challenging to manage numerous payment deadlines, leading to unintentional delays and negative marks on their credit history.
Limited Credit History: New and small businesses often have a limited credit history, otherwise known as “Unrated Businesses” which makes it difficult for lenders and credit agencies to assess their creditworthiness. Without a track record of responsible borrowing and repayment, it’s challenging to establish a positive credit profile.
Addressing Challenges with Strategic Solutions:
Building a strong credit history requires a deliberate approach and proactive risk assessment of your business to gain an in-depth perspective of factors that could pose credit risk to your business.
Credit Risk Assessment – Companies like Crediwatch provide you with a platform to get a birds-eye view of the financial health of your business based on public, private and consent-based data and provide comprehensive reports to gain an in-depth perspective of your business.
Practice Regular Monitoring – With a proactive monitoring approach and resilient credit risk management, you can get alerted for red flags that might affect your overall business health and take the right actions to mitigate the risks.
Build business credit for unrated businesses
Crediwatch Data-Driven Approach
Crediwatch revolutionizes the credit-building journey for unrated businesses by leveraging consent-based data. This includes essential financial information, GST data, EPFO contributions, and other key indicators of business health. By analyzing this data, Crediwatch creates a comprehensive credit profile that goes beyond traditional credit scores, therefore providing you with an alternate risk score that can be used to evaluate the creditworthiness of businesses of all types. Crediwatch’s AI-powered technology collates and analyzes data points that reflect your business’s operations, performance, and financial stability. This holistic view helps lenders and banks assess your creditworthiness more accurately, even if you lack a traditional credit history. This will help you to access better loan rates, lower interests, larger working capital and more opportunities to grow your business exponentially.
Crediwatch’s ML-driven risk classification approach is shaping the future of credit building for unrated businesses in India. By embracing consent-based data and harnessing the power of AI, these businesses can take control of their credit destiny and access the resources needed to grow their business.
4 best ways to improve business credit using Crediwatch
- Automated Credit Building and Reporting: Traditionally, reporting to credit bureaus involves manual efforts, which can lead to delays, errors, and inconsistencies. Crediwatch’s AI-powered solutions revolutionize this process by integrating consent-based data including various financial data sources, including bank accounts, GST filings, and other financial statements. Crediwatch’s AI/ML-powered solutions auto-extract the relevant data and compile it into comprehensive credit reports. This automated process reduces the risk of human error and guarantees that the credit history presented to lenders is a true reflection of the business’s financial health.
- Real-Time Financial Data Insights: Our AI-powered technology provides a competitive edge by offering businesses access to real-time financial data insights while empowering businesses to stay agile in their credit risk management strategies. With Crediwatch, you gain the ability to track your financial health in near real-time, receive alerts about significant changes, and adjust your actions accordingly. Businesses can always stay updated on changes in their credit score using the Trust Score Report, ensuring that you’re always aware of your creditworthiness.
- Leveraging AI-Powered Solutions for Credit Assessment: Crediwatch’s AI-powered credit assessment offers a holistic view that extends beyond credit scores. By considering multiple dimensions of your business’s financial health, including payment patterns, active charges against the company, legal cases, industry trends, etc., Crediwatch provides a more accurate and comprehensive assessment. This empowers you to strategize, adapt, and make credit-related decisions that align with your business goals.
- Staying Ahead with Continuous Monitoring: Continuous credit monitoring enables you to identify trends and patterns on why and how your account could go default and alert you early to identify risks or capitalize on opportunities as they arise. Instead of reacting to credit challenges retroactively, businesses can anticipate changes and adjust their strategies in real time. This empowers you to navigate fluctuations, mitigate risks, and make decisions that align with your financial objectives.
