min read

Wake-Up Call: Your Credit Score needs protection with growth capital

Discover how Revenue-Based Financing (RBF) stacks up against traditional funding options and why it's gaining traction among scale-ups.

Kasturi Roy

Content Designer

Hi, I'm an India-raised, Italy-based Content Designer & Strategist dabbling in delightful user experiences. A maximalist by nature, and minimalist in practice. Say hi to me on LinkedIn.

In the fast-paced world of business, maintaining a healthy credit score is often the unsung hero behind a company’s financial success. Your business credit score not only affects your ability to secure loans and financing but also plays a pivotal role in building trust with partners, suppliers, and investors. Here we will uncover the secret strategies for safeguarding and improving your business credit score. We’ll also address a pressing question: Does Revenue-Based Financing (RBF) impact your credit score and how can it enhance your risk management? So, let’s begin with the basics.

What is a credit score?

Your business credit score is a crystal ball of sorts, foreseeing your credit behavior and the likelihood of timely loan repayments. It draws its insights from all of your credit reports. In the world of business, companies lean on these credit scores to make critical decisions, such as extending mortgage offers, granting credit cards, auto loans, and various credit products. It even plays a starring role in tenant screening and insurance evaluations. Beyond these vital decisions, your business credit score helps determine the interest rate and credit limit you’re offered. At the heart of this process lies a mathematical wizardry known as a scoring model, meticulously crafting your credit score from the relevant information within your  credit report.

What factors can impact your credit score?

Factors that are typically taken into account by credit scoring models include:

  • Your bill-paying history
  • Your current debt that is unpaid
  • The number and type of loan accounts you have and how long they’ve been open
  • How much of your available credit you’re using
  • Whether you have had a  debt sent to collection, a foreclosure or bankruptcy and the timeline of the same
  • New applications for credit

The Significance of a Strong Business Credit Score

Before delving into the strategies, let’s talk about why a robust business credit score matters:

  1. Access to Financing: A high credit score opens doors to a variety of financing options, from traditional loans to alternative methods like revenue-based financing (RBF).
  2. Lower Borrowing Costs: Businesses with strong credit scores often secure loans at more favorable interest rates, saving money in the long run.
  3. Trust and Credibility: A healthy credit score can boost your reputation and instill confidence in partners, vendors, and investors.
  4. Flexibility in Growth: It enables your business to pursue growth opportunities, whether it’s expanding operations, launching new products, or entering new markets.
Credit score
Photo by Gabrielle Henderson on Unsplash

Now, let’s explore some secret strategies to protect and enhance your business credit score, while also addressing common objections related to RBF.

1. Master the basics of credit management

The foundation of a strong business credit score lies in responsible credit management. This includes paying bills on time, monitoring your credit report for errors, and maintaining a low credit utilization rate. While these practices are straightforward, they are often overlooked. Regularly reviewing your credit report and promptly addressing any inaccuracies can prevent unexpected hits to your score.

2. Diversify your credit sources

One objection often raised when considering revenue-based financing is a concern about diversifying credit sources. Some businesses worry that relying solely on one form of financing might negatively impact their credit score. However, diversification can actually be advantageous. A well-balanced mix of credit sources, including traditional loans, credit lines, and revenue-based financing, demonstrates financial stability and can positively impact your credit score. And having revenue-based financing as your primary financing does not affect your credit score. So let’s talk about that.

3. Keep a close eye on your debt-to-income ratio

Another critical aspect of credit management is your business’s debt-to-income ratio. Lenders and credit agencies assess this ratio to evaluate your ability to manage debt responsibly. The objection here might be whether RBF, with its revenue-based repayment structure, affects this ratio. The answer is both straightforward and advantageous: RBF does not significantly impact your debt-to-income ratio. Since RBF repayments are tied to revenue, they are considered operational expenses rather than traditional debt payments. This can be a strategic advantage for businesses looking to maintain a healthy ratio while securing growth capital.

4. Strategic Risk Management with RBF

One of the objections to considering RBF as a financing option is related to risk management. Some businesses fear that it might introduce uncertainty into their financial stability. However, when strategically applied, RBF can actually enhance your risk management efforts. Here’s how:

  • Predictable repayment: RBF’s revenue-based repayment model ensures that your repayments fluctuate with your revenue. During slower months, repayments decrease, providing a safety net for your cash flow.
  • No collateral required: Unlike traditional loans, RBF typically doesn’t require collateral. This minimizes the risk of asset forfeiture in case of financial challenges.
  • Alignment with growth: RBF’s flexibility allows you to access capital precisely when you need it, reducing the risk associated with unnecessary debt.
  • Long-term stability: RBF can be structured for the long term, providing stability while accommodating your growth strategy.

5. Continual monitoring and adaptation

In the ever-evolving landscape of business, adaptability is key. Continuously monitoring your business credit score and adjusting your financial strategies accordingly is crucial. This aligns with the objection related to the long-term commitment often associated with RBF. RBF providers can work closely with you to adapt the financing structure to your changing needs. This flexibility ensures that you can seize opportunities while safeguarding your creditworthiness.

Credit Score
Photo by Kelly Sikkema on Unsplash

In conclusion, protecting and enhancing your business credit score is not a mystery but a strategic must-do. By mastering credit management basics, diversifying your credit sources, and strategically leveraging financing options like RBF, you can navigate the challenges of growth with confidence. Remember, a strong credit score not only opens doors to financing but also builds trust and credibility in the competitive world of business.

For more insights on financing options like RBF and how they can positively impact your business, be sure to check out our article, RBF vs. Traditional Funding: Which Is Right for Your Scale-up?

Still unsure, if this is the right choice for your business? Get in touch with us here.

Interested to hear more? Check out Viceversa’s RBF platform today.

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