Is a credit score important for SME financing?

Finding funding sources can be essential for a business, either to get it going at the start or to give it fresh life when things are going badly. Because of this, maintaining a high credit score is a crucial step in gaining access to decent financing and low interest rates.

The ENAFIN 2021 study states that 5% of applications for business financing are turned down. This suggests that a sizable number of businesses lack capital. Risk assessment and credit scores are crucial factors in approval.

Importance of Credit Score

When an entrepreneur goes to a financial institution, it first assesses that the business meets the common requirements. In addition to this, he does an analysis of your business to assess your ability to pay the credit. This credit risk analysis determines if it is convenient to grant you credit and under what specific conditions they should do so.

In addition to the function of this analysis, the financial entity determines a number that measures the possibility that the applicant can comply with the payment. This number is called your credit score.

Within the sources of capital and financing for SMEs, this score is an indicator of the financial health of a business. For this reason, it is one of the most important factors in determining credit approval.

How is it calculated?

The sources of capital and financing for SMEs do not use a homogeneous formula to calculate the score. However, there are some common factors that entities often take into account:

Payment history

Lenders check that applicant companies pay their debts and that they do so on time. So, at the very least, you should make the minimum payments before the due date.

What is owed

A high balance is not good for the score. As long as the debts are higher, the reliability decreases.

History duration

In order to access a business loan, the time that a company has used various credit accounts and financial products is taken into account. The longer the time, the more beneficial, since there are more elements available to perform the analysis.

Different types of credit products

As with duration, the more loan products the organization has historically handled, the better. Cards, small loans or leasing are good examples. This shows lenders that you have the ability to properly manage different debts and keep them under control.

Credit accounts

This factor, on the contrary, should be kept to a minimum. It refers to the credit accounts requested or opened in a very short period of time. If this amount is high, it shows a company that may have serious capital problems and therefore represent a risk.

How to keep a good score

• Pay debts on time and the total required.
• Renegotiate debts, if it is not possible to pay them.
• Do not make many credit applications at once.
• Give variety to the types of credit.
• Keep balances low.

Now that you know the importance of this indicator, you can focus on improving it and ensuring your access to financing.

To promote simple and safe financing for companies, Pymes Capital works with a SAT API that, through a Fin Score that evaluates between 300 and 850, measures credit risk. Learn more at Pymes Capital and get the financing your company needs.