How to Improve Your Business Credit Score and Secure Better Funding

Introduction

In today’s competitive business environment, securing funding is a crucial aspect of growth and sustainability. Whether you are an MSME, a startup, or an established business, your business credit score plays a significant role in determining your ability to obtain loans, credit lines, and other financial support.

A strong business credit score helps in securing better interest rates, higher loan amounts, and favorable repayment terms. However, many businesses struggle due to poor credit scores, limiting their funding options.

In this guide, we’ll explore what a business credit score is, why it matters, and practical strategies to improve it so you can unlock better financial opportunities.

What is a Business Credit Score?

A business credit score is a numerical representation of your company’s creditworthiness. It reflects how responsibly you manage financial obligations, debts, and repayments. Lenders, banks, and financial institutions use this score to evaluate risk before granting loans or credit.

In India, business credit scores are maintained by credit bureaus like CIBIL, CRIF High Mark, Equifax, and Experian. The CIBIL Rank is commonly used, ranging from 1 to 10 (with 1 being the best).

Factors That Influence Business Credit Scores

1. Payment History – Timely repayment of loans, credit cards, and vendor invoices.
2. Credit Utilization – The ratio of credit used to credit available.
3. Length of Credit History – The longer your business maintains credit, the better.
4. Outstanding Debt – Higher unpaid debts can negatively impact your score.
5. Company Financials – Profitability, revenue, and financial stability.
6. Public Records – Any defaults, bankruptcies, or legal disputes.

Why a Good Business Credit Score Matters

A high business credit score offers multiple benefits:

Easier Loan Approvals – Lenders are more likely to approve loans quickly.
Lower Interest Rates – Businesses with good credit get better financing deals.
Higher Credit Limits – A strong score allows access to larger credit lines.
Better Vendor Relationships – Suppliers offer better terms and discounts.
Increased Business Opportunities – Investors and partners prefer financially stable companies.

10 Ways to Improve Your Business Credit Score

1. Register Your Business & Obtain a Business Credit Card

If you’re running a sole proprietorship or an unregistered business, register as a Private Limited (Pvt Ltd), LLP, or OPC to separate personal and business finances. Open a business credit card and use it responsibly to build your credit history.

2. Pay Bills & Loan EMIs on Time

One of the most critical factors is ensuring all payments – including vendor invoices, utility bills, loan EMIs, and credit card dues – are made before the due date. Late payments significantly reduce your credit score.

Tip: Set up auto-pay or reminders to avoid missing payments.

3. Maintain a Low Credit Utilization Ratio

Credit utilization refers to how much credit you use compared to the available limit. A lower utilization (below 30%) shows you manage finances well.

Example: If your credit limit is ₹10,00,000, try not to use more than ₹3,00,000 at any given time.

4. Reduce Existing Debts

If your business has multiple loans or outstanding dues, prioritize clearing them. High debt levels indicate financial stress, affecting your creditworthiness.

Debt Reduction Strategies:
Pay off high-interest loans first.
Consolidate smaller debts into a single loan with lower interest.
Avoid taking unnecessary credit.

5. Monitor Your Business Credit Score Regularly

Check your business credit report at least quarterly from agencies like CIBIL, CRIF, or Experian to:
Identify errors or discrepancies in the report.
Spot fraudulent activities or unauthorized transactions.
Track your progress over time.

Tip: If you find any errors, dispute them immediately with the credit bureau.

6. Establish Strong Vendor Relationships

Some suppliers report payments to credit bureaus. Maintaining good relations with vendors and ensuring on-time payments can improve your credit score.

Ask vendors to report your payments if they don’t do so already.

7. Avoid Frequent Loan Applications

Every loan application results in a hard inquiry on your credit report. Multiple inquiries within a short period lower your credit score and signal financial distress.

Apply for loans only when necessary and space out applications.

8. Keep Old Credit Accounts Open

A long credit history helps in maintaining a strong score. If you have an old business credit card or credit line, keep it active, even if you don’t use it often.

Closing old accounts can shorten your credit history, negatively impacting your score.

9. Maintain Healthy Business Finances

Lenders consider your company’s financial health when assessing creditworthiness. Ensure:
Strong cash flow management
Profitable operations
Proper financial records

Use accounting software like Tally, QuickBooks, or Zoho Books to track your income, expenses, and tax obligations.

10. Diversify Your Credit Profile

Having different types of credit—like term loans, credit cards, and credit lines—helps improve your score. A mix of short-term and long-term credit shows lenders that you can manage different financial obligations.

How to Secure Better Funding for Your Business

Improving your credit score increases your chances of securing better funding options. Here’s how to leverage it:

1. Apply for Government Loan Schemes

The Indian government offers low-interest MSME loans under schemes like:
Mudra Loans (Up to ₹10 lakhs)
CGTMSE Scheme (Collateral-free loans for small businesses)
Stand-Up India (Loans for SC/ST & Women entrepreneurs)

2. Approach NBFCs & FinTech Lenders

If banks are strict with lending, try NBFCs (Non-Banking Financial Companies) and FinTech lenders like:
Lendingkart
Bajaj Finserv
Razorpay Capital

They offer faster approvals and less paperwork.

3. Consider Invoice Discounting & Business Credit Lines

If cash flow is tight, consider:
Invoice Discounting – Get funds against unpaid invoices.
Business Credit Line – A flexible credit facility where you borrow as needed.

Conclusion

A strong business credit score is essential for securing better funding, lowering interest rates, and building financial credibility. By following these strategies—paying bills on time, reducing debt, monitoring credit reports, and maintaining good vendor relationships—your business can qualify for larger loans and better credit terms.

Are you struggling to improve your business credit score? Expenect’s expert financial consultants can help you optimize your finances and secure funding with ease.