How lenders use business credit scores

Lenders use business credit scores as a way to assess the creditworthiness of a business when considering loan applications or extending credit. Just like personal credit scores reflect an individual's financial history and reliability, business credit scores provide lenders with insight into a company's financial behaviour and ability to manage debt. Here's how lenders use business credit scores:

Initial assessment

When a business applies for a loan, the lender will typically run a credit search on the business. Experian is the credit bureau used by 90% of lenders and suppliers, so it’s important to ensure that you have a good Experian business credit score. This initial assessment helps lenders quickly gauge the risk associated with lending to the business. The majority of lenders will have a minimum hurdle they will set for a business credit score, if the business doesn’t meet this hurdle, they will be automatically declined. Having a good business credit score will ensure that your business can get its foot through the door when applying for a business loan. 

Risk assessment

Business credit scores play a key role in how lenders evaluate the risk of extending credit. A higher score signals that a business is more likely to repay its debts on time, making it a lower risk in the eyes of lenders. Conversely, a lower score may raise concerns about the likelihood of default. These scores influence not only loan approvals but also the terms and interest rates offered.

If your score isn’t where you want it to be, don’t worry, there are practical steps you can take. Read our guide on how to improve your business credit score to start building a stronger financial foundation.

Loan approval and terms

A good business credit score can positively influence a lender's decision to approve a loan application and the terms offered. Businesses with higher credit scores are more likely to be offered favourable terms, such as a longer repayment period, lower interest rates, and higher borrowing limits. On the other hand, businesses with lower credit scores may face challenges in obtaining financing, or may receive more expensive interest rates and shorter term lengths to account for the increased risk for the lender. 

Credit limits

For businesses seeking a credit facility, or a business credit card, a higher business credit score can significantly increase the likelihood of securing higher credit limits. Greater access to credit provides flexibility to manage day-to-day expenses, navigate cash flow gaps, and invest in growth when opportunities arise. That’s why maintaining a strong credit score is crucial to supporting your business’s financial stability and resilience.

Loan amounts

Business credit scores also influence the maximum loan amount a lender is willing to offer. A higher credit score may lead to larger loan approvals, giving businesses the resources they need to invest in growth and expansion. 

Business credit scores play an integral part in most lender’s decision making processes, so maintaining a strong business credit score is necessary if you’re looking for financing. Regularly monitoring your business credit score and improving it where possible can lead to better financial opportunities if you're trying to get a business loan.