Credit ratings in the construction industry
Accessing appropriate funding and credit lines is crucial for many UK construction companies. Some require it to simply get off the ground, others to fund growth and win contracts and others during difficult times.
Having a poor credit rating is usually a significant factor in loan rejections, loss of tender opportunities and being offered poor terms by suppliers. Therefore, it is key that your business has the best possible credit rating in order to access finance and make the most of your potential.
Stuart Stead, Head of Property and Construction at Cowgill Holloway LLP looks at some practical tips in order to optimise your access to the best finance deals, negotiate the best deals with suppliers and grow your construction business.
Knowledge is power – know your credit score
Naturally, lenders will want assurance that your business is able to repay their credit and guarantee financial stability for the duration of the debt. This often means that lenders rely heavily on commercial credit scores. Check your credit score regularly and be proactive in optimising it.
Credit scores provide information such as the likelihood that your company may default, existing loan values, missed payments, CCJs, exceeded credit limits etc.
If you don’t know what your credit score is then you won’t know how to improve it. Obtaining your credit score will enable you to identify your strengths and emphasise these when applying for finance or credit. Likewise, if you know your weaknesses, you can address these and there could even be a mistake in your credit information which you will want to address promptly – certainly before submitting any credit application.
Sign up for alerts when your company’s credit score changes or is searched so you can quickly identify and rectify any problems.
Be able to demonstrate effective financial management. If your suppliers are paid on time you can show that you are a more likely to be reliable and responsible borrower.
Ensure that all information at Companies House is up to date and that your accounts and other statutory requirements are submitted on time. Late filing can indicate financial problems.
Inform customers, suppliers, Companies House etc. of any changes to location or business status. If your information is not up to date or inconsistent this may make your business appear disorganised and unreliable.
Limit credit applications
A high number of credit application in a short period of time can indicate a business struggling to secure funding. Consider asking for a quote rather than making an application as some applications may result in a credit search being recorded on your credit record.
Consider your personal circumstances
Often lenders will look at the personal credit ratings of directors and owners. If you have made a number of recent personal credit applications this can impact negatively on the chance of the business to obtain finance or credit. This is particularly important for new businesses with limited financial information where owners’ personal finances are likely to be used as an indicator of creditworthiness.
Collaborate with suppliers and monitor your suppliers and customers
Ask your suppliers to provide references. Maintaining a good relationship with them by paying on time will make them more likely to do this.
Monitor the credit positions of your customers’ and suppliers so you are not compromised should one of them suddenly go into administration.
A good credit score is not just useful when negotiating finance. A strong credit score can be invaluable in other situations, for example when negotiating business contracts or competing for tenders. Robust and reliable information, sound financial management and regular monitoring can improve your credit score.
This article is for general guidance only. It provides an outline, and may not include points which are important to your situation. You should not depend on this blog without taking advice based on the full facts of your case. The information given was correct at the time of publication.
The information was correct at time of publishing but may now be out of date.