Tips to Increase Your Small or Medium Business’s Credit Score

Poor credit rating is one of the foremost reasons for rejected business loan applications. In recent years, main stream banking sector has become increasingly wary of lending to small and medium businesses. A major factor behind this is the rise in non-performing assets (NPAs) marring the banking sector, which has made the banks risk-averse.

Nowadays, an SME needs to have an almost perfect credit score to secure a business loan. This in turn has given rise to FinTech finance, a smarter and more efficient way of financing small and medium businesses that relies on data-driven technologies for faster loan approvals. Yet, despite their lenient approach, FinTech lenders too, assign a certain weightage to the credit score of the borrowing company.

In this post, we are sharing some tips and advice that will help your firm improve its credit rating and get a business loan.

  • Credit rating is compiled from data of your past business and credit transactions. So, if there are cases of financial irregularities in your recent past, your credit rating is going to be lower. Another factor that is reflected by your credit rating is the way in which you utilize available credit, which includes the personal credit history of payments made to credit cards, utilities, loan EMIs and mortgages. If a bulk of your income is going into such payments and your bank balances are less than ideal, the credit rating suffers.
  • Now, improving your credit rating is a matter of setting these irregularities right. It is a time-consuming process so do not expect any miracles overnight. But by following strict financial discipline, you can regain a good credit score in a few months’ time. Refrain from applying for fresh loans when you are on the way to recovering your credit score because multiple credit searches by lenders may take away crucial points from your credit rating.
  • Another thing that might be affecting your business’s credit rating is wrong information uploaded by a financial institution, such as non-closure of a bank loan account that you have paid-up months ago. So, analyze your credit report carefully to identify wrong entries and raise a dispute with the rating bureau. These updates may take up to 30 days to reflect in your credit report so be patient.
  • If you find the above-mentioned discrepancies in your credit rating, be sure to check your credit rating with other rating bureaus to see if their records are also wrong.
  • Lastly, try and use the same address in all your business accounts to indicate legitimacy. Also, use landline numbers instead of mobile numbers as it indicates that you are a stable business establishment. Try paying more than the minimum monthly amount on your credit card loans, however, you may need to improve working capital flow for that. One way to do that is to apply for a small-ticket working capital loan when your credit rating improves to further consolidate your finances.
  • Once you get back to a good credit score, keep an eye on it and make sure you do not slip back into old financially imprudent habits again.

Why you Should Choose a Business Bank Account for Working Capital

In recent years, the government’s push for going digital has gained traction in both private and public centre enterprises. The financial system, be it securities exchange or taxation or transactional exchange, has come under increased legal scrutiny due to digitisation. In essence, it is a noble venture that aims to do away with age-old methods of paper banking and physical verifications, but as early adopters, many small business owners are finding it a difficult transition. One of the main reasons behind these difficulties is the single-use bank accounts for personal and professional income.

In some cases, the tax authorities and banks have opened inquiries due to a mismatch between an individual’s declared incomes and actual account activity. However, later realizing that most of these account holders are small business owners using savings accounts for their professional use. So, if you are a small business owner who is yet to segregate his/her personal and professional incomes, the time to do so is quite at hand. Also, there are several other benefits of having a business bank account than simply the convenience of avoiding unnecessary legal scrutiny.

One such advantage is having access to quick finance. SMEs in India can use a current account facility for business transactions. These accounts do not generate any interest but do give selective access to working capital finance, albeit with a catch. An business has to pledge an asset as collateral before the funds are credited to its current account. So, in most cases where an SME does not have the assets to secure a working capital loan from a bank, the owner ends up using a personal account for professional use, because there is no perceived need for him to get a current account.

However, the advent of Fintech firms like Lendingkart has changed that perception by offering unsecured business loans for small and medium businesses. Business owners can now have both a current account and an access to working capital finance without pledging company assets. Plus, these loans are offered at relaxed terms and with easy repayment schedules to ease the financial burden on SME owners.

Given this change, the banks too have adapted their current accounts divisions by creating sub-categories that cater to specific business needs. Here are some of the things that are made simpler with a business account for your SME.

  • Digital Banking Services are a part of the current account. These personalized services ensure that you can access your working capital funds anytime, anywhere. Digital banking is also a more transparent way of conducting business than the usual exchange of cash. Incidentally, a lender is also more likely to trust your business credentials if you have a well-maintained current account for your business with digital transactions enabled.
  • Salary Remittance to Employees is also simplified by using a business bank account with facilities like digital approval of paychecks and invoices and real-time transfer of funds to dedicated salary accounts.
  • Checks Payable at Par is another of business bank account advantages that can help in streamlining your financial transactions across state borders.
  • Personalized Forex Rates for businesses who have clientele outside the country are offered by several banks. This facility helps in seamless international exchange of monies.
  • Interest Earnings, while not a traditional feature of current accounts, is also being explored by several public and private sector banks to market themselves as more business savvy alternatives.

So, we hope these are reasons enough for you to switch your business dealings to a current account and reap the benefits for your SME. In case you need a quick business loan you can always apply for one with Lendingkart by visiting our website at Lendingkart.com or downloading the Lendingkart Finance app on your Android device. We offer business loans at lower interest rates without requiring any collateral and disburse funds within 3 days of document verification.

Best Small Business Practices to Adopt in a New Financial Year

A small business owner is always striving to give his/her business the right environment to thrive. Here, environment implies having a good workplace, hiring efficient employees, getting the right equipment, developing fruitful relationships and most important of all, gaining access to proper financing and working capital. The last point is most important because every business needs money to operate and without a proper inflow and outflow of cash, any business will eventually suffer. Incidentally, inadequate access to working capital is the reason behind failure of most small business enterprises in the country and the world today.

In this post, we are sharing some tips that will help you enact financial discipline for your SME. To tip you off, these pointers explain the advantages of good accounting practices that keep your finances streamlined and readily available for use.

    1. Practice Strict Bookkeeping: The cardinal rule for running a successful business is to keep accurate records of all the transactions happening on a day-to-day basis. Financial records give you an accurate picture of your income and expenditure, debts, and, accounts receivables. Which in turn help you in tracking income, paying liabilities, and filing tax returns on time.

 

    1. Deploy Integrated Accounting Systems: The reach of technology is extending every day and a small business owner will do well to embrace a modern accounting system to integrate his/her small business with the digital economy. Accounting software are in use by most large scale businesses toady and their benefits are time tested. As a small business owner you can also utilise these systems to save accounting costs, improve financial accuracy, and reduce the chances of theft and fraud.

 

    1. Track your Invoices: Getting paid for the work you have done is all that matters at the end of each day as a small business owner. If you are not getting paid on time, your employees are not getting paid on time, your equipment is not being serviced on time, your rental and utility bills are not paid on time and so on and so forth. Therefore, it is important to have an active invoice tracking system in place. Moreover, generate your invoices as soon as your product or service is delivered instead of waiting till the end of month, this will speed up your invoice clearances significantly and give your working capital a boost.

 

    1. Follow Generally Accepted Accounting Principles: GAAP are accounting techniques that are pursued by leading accounting and auditing firms and are accepted as a standard procedure in the financial world. By following these principles on reporting and disclosure of financial statements you will not only be able to draw quicker financial decisions but will also instil confidence in a lender or investor for raising funds.

 

  1. Use Small Ticket Finance for Working Capital: As enumerated at the beginning of this post, having enough money to run daily business is one of the primary concerns of a small business owner. It is quite possible that your business will run into temporary working capital difficulties at the beginning. In such scenarios, never dip your hands into the capital earmarked for equipment or assets to use as working capital. This a vicious cycle which may never end and cause your business to lose precious competitive edge as you fail to invest in proper assets because you used up that capital as working capital. Instead, apply for a working capital loan to finance your short term needs. There are many fintech firms like Lendingkart who offer working capital loans at low interest rates in India. These business loans are short-term, typically one year in duration, and have flexible EMI options to make repayment easier.

In conclusion, financial discipline is necessary if you want your small business to be profitable. The online world offers a lot of tools that you can utilise to bring in transparency and accountability for your small business. Furthermore, online financing options have made it way easier to get working capital loans for a small business and you should utilise these opportunities pro-actively for sustained success in your venture.

To know how to apply for a small business loan from Lendingkart, click here.