How to Build Creditworthiness as A Small Business Owner

How to Build Creditworthiness as A Small Business Owner

Creditworthiness is one of the most important things that all small business owners should consider when starting their business. We can define creditworthiness as the extent to which a business is deemed suitable for financial help. Creditworthiness is judged based on how reliable a business was in paying back its past loans or debts. Creditworthiness impacts a lender’s willingness to trust that a business will pay up its debt in good time.

Several methods can be used to determine the creditworthiness of a company or a small business. Just so you know, good creditworthiness can go a long way in helping businesses to boost their business growth. There are three essential values when it comes to creditworthiness evaluation. These values can be tagged as “the 3 C’s”, namely: Capital, Capacity, and Character.

Creditworthiness Evaluation

  1. Capital
  2. Capacity
  3. Character
  1. Capital

Capital simply means money. In business, you need capital to get more capital. The amount of capital a small business has in savings will go a long way in determining creditworthiness. This is because the capital that a company has goes a long way in determining the amount of money that can be given as a loan to the business.

  1. Capacity

Capacity is your business’s ability to meet up with a financial agreement in the present or future. This creditworthiness factor is determined by answering questions like: What is your salary? Do you have a steady source of income? The answers to these critical questions will then be used to determine if your business will be buoyant enough to settle credits when you get them.

  1. Character

Character reflects your integrity and trustworthiness. Your creditworthiness history can help lenders judge this. If you’ve defaulted more than is acceptable, then you’ll most likely be denied a loan. But if you have always paid up at the right time, you have better chances of being granted the loan. Also, certain factors such as your current location, how long you’ve stayed there, and what report people have about you determine a lot.

How can you build creditworthiness as a business owner?

When you have earned a good credit score for your business, you would quickly obtain more financing to boost your business and increase its value. Here’s what you need to know about building creditworthiness as a small business owner.

  1. Review Your Business Credit Report

You are likely to have a business credit profile already if you’ve applied for a loan in the past, incorporated your business, or picked out an office space before. You can quickly look through the summary reports of your business credit profile. Reviewing your business credit report is an instrumental step when applying for loans.

Certain events of the past can trigger a low credit score, such as missed payments or a slow hike in debt. The best thing to do to maintain strong business creditworthiness is to pay your bills on time. Doing this will build a positive payment history and open the doors to more opportunities. So, if your business credit report is in the reds, you may want to work on that before applying for a loan.

  1. Manage Your Business Effectively

Another way to boost your creditworthiness is to show your lender that you manage your business well and that it has the potential to grow and become successful. One way to show how effective and efficient you are is through your business plan. Your business plan should include a detailed picture of your business’s past and present performance and how much it has grown over a stated period.

A well-presented business plan gives your business the much-needed advantage when it comes to securing loans. And the reason is not far-fetched – the lenders are sure that they are not throwing their money to the wind.

  1. Borrow Responsibly

Borrow responsibly! It would be best if you don’t keep borrowing again and again from different sources. It only shows that you lack basic business sense. Put yourself in the shoes of lenders – would you be comfortable lending out your hard-earned money to someone who has a track record of borrowing too often? I’m sure you answered no to that question. This same sentiment governs the attitude of lenders to businesses who have a habit of borrowing too often.

To make matters worse, some businesses have a track record of borrowing beyond what they can payback. As a business or business owner, you must resist the urge to obtain loans too often. If your purpose of borrowing is not entirely justifiable, don’t do it! If the business deal you want to seal may not churn out sufficient funds to pay back your debt and get a profit, don’t take a loan!

  1. Don’t Mix Business with Pleasure

One of the major mistakes business owners make is not clearly separating their personal expenses from business expenses. A surefire way to put your business in constant lack and jeopardy is by financing your personal pleasures with money meant for your business activities. If this is you, then your funds will ever be enough to run your business! You will always need more.

From there on, it’s a cascade of events – you borrow funds for the business and end up using it on activities you can’t justify. If you don’t want this to happen, then you have to employ the art of discipline with your financial records. You’re a separate entity from your business. Never forget that.

  1. Keep Records

Records and references go a long way in business. When you approach a lender, they will go through the records of your past performances on paying back loans. The most generic method for doing this is to get references from the other financial institutions that you have borrowed from in the past. The excellence of your performance will determine the willingness of a lender to part with their money.

Understanding what it takes to get a good credit score will help you avoid mistakes and keep your business on the right track. Take note of factors like payment history, the amount owed, length of credit history, and the type of new credit you plan to obtain. It would be best if you got familiar with these factors as they will help you build and maintain an excellent credit score.


In conclusion, building creditworthiness is a large safety net for your business. It increases your chances of getting more financial opportunities that can transform your business!