What Credit Score is needed for a Business Loan In the UK?

Getting a business loan for your new apparel business or plantation requires you to pass an assessment. It is a lengthy analysis of the company’s finances and operating history.  It involves the analysis of multiple factors. Out of which, a credit score is the most important one. It indicates to the potential loan providers how capable you are of paying the dues back. It also helps the loan provider know how your business works and the risk it poses from the lending perspective.

WHAT DOES A BUSINESS CREDIT SCORE IMPLY?

A business credit score is a three-digit number (0-100) that reveals a company’s reliability with credit.  Loan providers, leading clients, and merger companies may check before proceeding with the deal. It helps the loan providers analyse the company’s credit history, previous debts, and defaults; you have. Accordingly, they may lend a business. A business may only qualify for an amount that one can repay comfortably.

A business credit score is different from a personal one.  A lender may not check your business credit score for personal loan needs. However, when you need a loan for business, you must provide both. It is especially important for companies with limited cash and credit history.

CAN YOU GET A COMPANY CREDIT SCORE CHECK FOR FREE?

Yes, you may get a company credit score check for free from the leading agencies. Organisations like Experian provide a detailed overview with verification, ownership, registration, and financial data. You may get the report in 30 days.

Alternatively, if you need a loan today, no-credit-check business loans might help. You can use it to check the possibilities of qualifying for the loan. It helps you know the expected loan costs, chances to qualify, and approximate you may get.  Your credit score remains the same after the check.

WHAT IS THE MINIMUM BUSINESS CREDIT SCORE REQUIRED FOR A LOAN IN THE UK?

There is no minimum credit score to qualify for a business loan in the UK. However, most loan providers prefer borrowers with credit scores of 50 and above. Individual businesses with a credit score of 80-100 may get instant loan approval with low interest rates. 

However, different credit agencies (Experian, Equifax, and TransUnion) use unique parameters to calculate credit scores. Hence, you may have more than 2 business credit scores. Here is the split of how different agencies view your credit score:

Credit Reference Agencies ( CRA)	Type of Scale	High risk (poor credit score)	Medium risk (Fair credit score)	Low risk ( Good credit score)
Experian UK	0-100	40 and below	40-80	80-100
Equifax UK	0-1000	438 and below	400-810	811 or over
TransUnion UK	300-850	300-660	661-720	781-850

WHAT DOES THE EXPERIAN BUSINESS CREDIT SCORE IMPLY AT EACH STAGE?

As you can see above, individual business credit scores falling under low risk are deemed as ones with good credit ratings. Whichever agency you contact, focus on ensuring a low-risk credit score. Here is what Experian’s business credit score implies at each stage:

a)         Low risk or good credit score (80-100)

Individual businesses with credit scores of 80 and above are creditworthy. You may get a large amount of loans at low interest rates. Additionally, some loan providers may offer better facilities to you than those with a bad credit score.

You may get the flexibility to choose the repayment terms. It makes borrowing easy. You may get cheaper quotes on business loans and credit cards. There is probably no obstacle to getting a loan with a good credit score.

b)        medium risk or fair credit rating (40-100)

Individual businesses with credit scores of 40-100 do not reveal major risks to the lender. You may have pending bills and defaults, but balance other costs well.  It does not completely rule you out from getting business loans.

However, the terms you get remain slightly more competitive than low-risk or good credit score loans. Accordingly, the amount you get may be less with short repayments. However, most lenders provide flexibility to choose the repayment to businesses with average credit scores.

c)         High risk or Poor credit scores (40 and below)

Individual businesses with a credit score below 40 may struggle to get business loans or credit cards. Lenders consider such profiles risky. They are wary about the fact that you may default on the loan. Therefore, you may face higher interest rates than good and medium credit scores here. It increases the overall costs of the loan. Moreover, the repayment term remains shorter than for good and fair credit scores. 

In some cases, the loan providers may demand a personal guarantee. It is when your credit and finances do not meet the basic criteria. A personal guarantee is an agreement that reveals your assurance to pay the dues using personal assets if the business one does not suffice. Yes, the loan provider may claim the assets legally if you fail to repay the loan. 

If you are new to all of this, contact an experienced business loan broker immediately. The person shares expertise in providing detailed assistance. He may help you understand the personal guarantee and accommodate the process without confusion. Moreover, you don’t need to worry about finding the right direct lender and document processing, the person sorts it for you.  Pairing with expert help can avoid any major issues in getting affordable loans.

WHAT AFFECTS YOUR CHANCES OF GETTING STARTUP LOANS WITH A BAD CREDIT SCORE?

Aspects like low operating history, bad credit score, and late filing of accounts may affect chances to qualify.  These issues make you appear risky in the lender’s eyes. Other aspects, like unclear profit, also affect loan approval.

However, even if you get the loan, you get strict terms and high interest rates.  Let’s understand the further aspects that may affect your chances of getting startup loans with a bad credit score:

1)         LIMITED TRADING HISTORY

Individual businesses with a credit history of less than 6 months may struggle to qualify. Here, the loan providers may tap your personal credit history to understand your affordability. The process becomes more complicated. Thus, you may struggle to get a loan.

What to do:

•           Ensure a separate bank account for business purposes.

•           Check other ways to secure funding, like investors and crowdfunding, until you complete 6 months.

•           Work on your business plan and improve the major aspects.

2)         DELAY IN FILING ACCOUNTS

Businesses and companies must file accounts with Companies House periodically. Delay in doing so affects your credit score. It reveals your irresponsibility to the loan providers.

What to do:

•           Analyse your business accounts and liabilities before the day approaches

•           Mark the payment date on the business calendar

•           Analyse every detail carefully to avoid any mistakes

•           Keep some amount safe for such expenses

3)         INCONSISTENT CLIENT PAYMENTS

Non-repayment on the client’s part may reveal unreliability on the financial terms. It releases a sign that you may pay the dues late if the client delays the payment. Therefore, try to get timely payments from clients. It is about revising the current terms and instituting new ones. Here is what you can do to get timely payments:

•           Issue a late payment fee on every payment after the 10-day grace period

•           Offer incentives to clients for pre-paying the dues

•           Provide discounts to the first 10 paying clients

Bottom line

Usually, you need a good and low risk credit score to qualify for a business loan. It reveals your potential to clear the dues timely. Thus, you may get low interest and favourable terms on the loans. Identify the aspects like- paying debts on time, consolidating some to improve credit rating and improving business plan. Check the best ways to improve accounting and get client payments timely.  It may help you get business loans for bad credit instantly.