Euro Finans AB | Jun 27, 2023 1:36:57 PM

5 tips to improve your company’s credit rating

Sometimes, companies need to raise a loan. The lender always makes a careful assessment of the company’s credit rating. The lower the risk the lender needs to take the greater the possibility that the lender will approve the application and grant a loan with good conditions. In the following section, we present five good tips for a company to improve its credit rating:

1. Take care of your finances and keep a check on others

Every time that you make an application for a loan, the lender will want to look at your accounts and income statement. This shows a lot of information about the state of the company and its development. Make sure that your financial statistics are in good order and make an effort to show that the company has a long-term positive development. Pay your debts and taxes in time. Make sure that your customers pay in good order so that you have money in your account to pay the company’s invoices, wages and tax due. Make a liquidity plan so that you know when you will need to have money in your account. A good tips is also to invoice in instalments for large projects to distribute the income over a longer period. Any records of non-payment will be shown in your credit rating, which is a clear warning signal for the lender. A record of non-payment also affects the company’s credit rating for a long time and worsens your ability to raise loans and start collaboration.

Just as the bank checks your company, you need to keep an eye on your customers and suppliers. An unexpected credit loss can cause serious liquidity problems which quickly generate new problems for the company. Your gut feeling is important and it can be good with a system of warning flags. If you notice hat some partners take an extra long time to pay or deliver, if they suddenly have debts at the Enforcement Authority or if there are disturbing changes sin the ownership structure or the composition of the board,, it might time to review your collaboration.

2. Your financial statements - in good order at the correct time

One of the most important sources of information on the state of your business is your financial statements and income statement. Use professional help if you cannot or don’t want to do it yourself – it’s worth it! You need to keep a check on what the bank looks at and which key ratios are important. What they want to see is that your company is growing with good profitability and that there is a positive trend in the company, and that you are playing your cards well. One such indication may be that the company’s profits are reinvested in the company to improve long-term growth and profitability. Make sure therefore that you always have a grasp of your company’s statistics and prepare well before you contact a lender.

3. Corporate structure and the board

The company’s statistics may be in good order although the people involved in the activity are perhaps not so orderly. A lender wants to know who they are going to do business with and it is not difficult to find information about who is CEO and who is on the board. The people who represent the company also need to be able to show that they have a good credit rating and have nothing to hide. You should therefore choose your close associates with care.

4. Only borrow for growth

A lender will see whether you have a lot of other loans, but also whether you have applied to many lenders previously. Your record affects your credit rating. Borrow only when you really need to and when you borrow do so because your company is thriving and needs capital to grow. Never borrow to save a company which is not going well and thus not profitable.

5. Review your finances regularly

As a board member, company owner or executive. you are in charge of your company’s finances. You will be held responsible if anything goes wrong. Keep a check therefore on who you work with and avoid unpleasant surprises, invoice regularly, pay your invoices and debts in time, keep the accounts conscientiously and respond to warning signals before it’s too late. Make sure too that your customers are contented, and follow up every delivery and see what can be done even better next time. Always ensure that you have a strong cash flow and available resources for unforeseen expenditure. If you have expensive loans and credits, try to replace them with better terms. Several expensive loans can perhaps be replaced by one with better terms. What do you spend money on, are in control of costs? You can often save money by reducing unnecessary costs.