02-Mar-2017 written by : FSI-Team
Credit report and credit scores come to mind only it comes to an individual interested in accessing a fresh line of credit. If you are financially conscientious, you already know that is of prime importance for any individual to maintain a high CIBIL score to apply for a fresh loan or a credit card. Like individuals, businesses are also treated as corporate entities by credit bureaus.
Businesses are not assigned a credit score or a credit rating, but the CCR is relied upon substantially by lending institutions as a part of their credit assessment process. The company credit report or the CCR contains data submitted to the data directly by the lending institution. The past payment record of the company serves as adequate indication of its future ability of credit handling. Thus like individuals it is also important for business houses to maintain a good credit record that goes into its CCR. Here is all you need to know about business credit report or the CCR.
Just like a cibil report of an individual is a barometer of his financial health, the credit report of the company contains information about the existing track record the company has with regards to its existing line of credit. It gives a clear picture of the outstanding amount of loan and if the company is under duress due to a lawsuit. A company credit report is thus of primary importance and impacts its ability to approach a financial institution for a fresh loan.
Each company whose credit record exists with a credit bureau, is assigned a unique number called a DUNS number, and serves as identification to a prospective lender. Any lending institution interested in doing business with a company that is a member of the credit bureau in question and or the company itself can access this credit report at will. Each time a fresh inquiry is made, it gets recorded in report and serves as a snapshot to a prospective lender about the kind of business liaisons the company has.
As you delve further into a business credit report, you can find further details about when and where the company has accessed credit, the various sources of credit, the overdraft details, the amount of each credit and even if the company has acted as a guarantor to a loan.
Protect your business- Identity theft is as a palpable threat in the highly-digitised world that we are living in today. A fraud or an identity theft will not only impact the cash flow of your business, it may also severely impact your business reputation. Thus, like an individual, it is important for a business to run a regular credit check.
Avoid and correct mistakes- If you do not keep checking your CCR from time to time, there may be a chance of out-dated information staying in your report. Out-dated information may impact your chances of getting a fresh line of credit, when you are in dire need of one.
Impacts ability to access fresh line of credit- A CCR which speaks of high quality credit that the company has availed of in the past and its track record of servicing the same, enhances it chances of accessing a fresh line of credit. A prospective lender evaluates the loan application of the company by looking at its past and current debt obligations, its repayment track record and its ability to service a fresh line of credit in the future. It also refers to the collateral the company has provided while applying for a loan. When a loan application is supported by multiple forms of collateral, it enhances the chances of the company getting the line of credit that it seeks. How to improve your CCR?
Just like an individual must make a continuous attempt at improving his CIBIL score, so must a business entity be alert and make a conscious effort at improving its credit records. Here are a few tips.
Timely repayment of credit- The repayment track record is the most important factor impacting the business house, just like in the case of an individual. Thus, if you have taken credit cards in the name of your company, make sure you are making all outstanding bill payments on time. The same holds true for loans. Apply for fresh business loans when you know you can afford to make timely repayments of the same. Also, bear in mind that a business owner must put in substantial investment or capital into his business before considering an application for a business loan.
Keep an eye on your business credit report- Just like it is prudent for an individual to make bi-annual checks on his credit report, it is important for a business entity to do the same if not more. Because of the large amount of data exchange that happens between lending institutions, companies and banks, errors and discrepancies may creep into your report without you realising it. By keeping a vigil over your business cibil report, you can ensure that your credit record remains blemish free.
The company credit report plays an important role in the loan approval process, as it presents an objective picture to the lending institution about the financial strength of the company. As a business owner is prudent for you to conduct periodic credit checks on your CCR to avoid unpleasant surprises when you apply for a fresh line of credit.