Neil Bellamy, head of technology, media and telecomms at NatWest, explains how tech entrepreneurs can build a positive credit score to gain access to bank finance.
Whether you’re a new business that needs startup funding, or a growing company that needs the funds for expansion, any application for finance will mean that your bank will try and build up a picture of your personal and business circumstances combined with your financial history.
This is a critical part of assessing the business and will often be used alongside your business plan and cash flow projections.
Generally a bank uses four sources of information to build a profile of you and your business when deciding whether to loan you money:
- The details you have provided on your application
- How you manage your bank accounts – both business and personal
- Information about you and your business from a Credit Reference Agency (CRA)
- Knowledge and assessment of your business from your Relationship Manager
Credit Reference agencies
CRAs collect and maintain information on your individual and business behaviour in the UK and record five different factors of your credit profile including your:
- Payment history
- Total amount of debt
- Time and length of credit
- Type of finance you have
- Recent applications for finance
Your payment history and total amount of debt are most likely to contribute the most towards your overall credit rating.
However, there are many factors that affect a credit score – it’s based on more than just whether you pay your bills on time. Your score can be affected by the amount of available credit you have with your bank, credit cards, the length of time you’ve had a credit history, the number of inquiries made on your credit profile and more.
How to improve your credit score:
- Make any credit payments on time and for the required amount.
- Ensure you are on the electoral register.
- Limited companies should file full rather than abbreviated accounts at Companies House.
- Make sure the balance on your account or approved overdraft limit is sufficient to cover any payments due from your account (e.g. cheques, standing orders, direct debits, debit card and online payments).
- Build up use of your business bank account over time to demonstrate your turnover.
- When enquiring about finance you should initially just ask for quotes until you are ready to apply for finance.
What to avoid:
- Do not make several requests for finance. Applications at once over a short period of time will result in ‘multiple searches’ (also known as ‘footprints’) showing on your credit record which could affect your credit rating.
- Do not exceed your agreed credit limit
- Do not miss payments leading to credit arrears.
As your business grows and builds its own track record, the lending decisions will be more about the business than you as an applicant, but having a healthy credit score personally as well as through your business will put you in a strong position when applying for finance.