Funding schemes

The Funding for Lending Scheme was designed to address this problem by encouraging banks to lend to small businesses but there have been mixed results since its introduction.

Ultimately, high street banks and other major lenders were cautious about lending to SMEs and small businesses. Their decisions were often based either largely or entirely on credit ratings and businesses can find themselves hamstrung in their quest for credit through little fault of their own.

The Telegraph highlighted the case of one entrepreneur who was turned down for a business loan when he funded a car through a finance broker. The broker had conducted numerous credit searches on his client's behalf, which in turn hit the businessman's personal rating but there are possible solutions.

Improving credit ratings - which can be achieved through numerous activities - could increase a business' chance of securing credit and means that the potential of the scheme still remains.

For this to occur, those in charge need to be aware of what affects a business credit score and how it can be overcome. Many small businesses are not helping themselves in this regard as according to research published recently in Experian's SME Reputation Index, only 13% of the UK's SME financial decision makers were fully aware of the key factors that could influence their business' credit score and only around two in five (41%) had ever checked their business credit report.

It's little wonder, then, that a 'computer says no' approach from the banks often results in a refusal.

What can a business do to improve its credit rating?

Having a positive credit rating is important for any business - after all, how you appear to creditors will greatly affect your ability to secure finance and thus determine your business activity to a certain degree. There are many things you can do to improve your business credit rating, such as:

Limit the number of credit applications you make: Making numerous applications for credit in a short space of time is one sure way of damaging your score. Whilst his should be avoided, businesses should also remain pro-active in their attempt to build a positive rating.

Get all your vendors to report payments: This will help build a positive credit rating by showing that a large number of people are reporting positive activity where credit/payments are involved.

Repay any outstanding debts: This will help to remove any bad credit history you have and prove that you are financially responsible.

Keep business accounts open: This is only applicable if the account has a positive credit history. Even if you don't use it very often, it can prove beneficial to keep it open to offer a positive credit report for your activity.

Take care of your accounts: Two of the main factors that affect scores positively are prompt payment to suppliers and filing accounts on time. Online accounting with a product like those supplied by Sage One can help ensure your accounts are accurate, up to date and visible. You should also ensure that you make at least the minimum payment to all creditors and service providers on time, including any existing loans, credit cards, utilities and mobile phone providers.

Access to affordable credit is essential for most businesses and your credit rating can affect both how much you may be able to borrow and the rates you are offered. It therefore makes sense to take what steps you can to take control of your rating.

For more information on how to improve your businesses credit rating, click here.