The Role Of A Credit Rating Agency
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by: RobertBain
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The main source of information for lenders relating to corporate credit requests comes from various credit rating agencies. They provide information so that the lender can decide if you are right to extend credit to. They will assess your risk factors to also determine how much they can safely give you. The amount of interest that is applied is also based on the credit rating agency information.
In order for you to have a good idea of your rating, turn to a non profit credit rating agency. They will provide your with your business information without any fees. They will also consult with you to explain what it means. They want you to have the knowledge so you can go out there and get the corporate credit you need for your business to be successful.
Many of the credit rating agencies are in place by the United States government. Others are independent businesses. They are in place to help lenders make a decision as to who they will extend credit to. Make sure you fill out your application completely so the lender can look at the various aspects of it as well. They want to access your needs as well as the risk involved in giving you the funds.
The information that is received from a credit rating agency will significantly affect the interest rate that is applied to the credit. Since some businesses are borrowing huge amounts of money, that interest rate is something to take very seriously. The different could end up being hundreds of thousands of dollars over the course of the lenders agreement.
For businesses, the credit rating is calculated differently than it is for personal credit. Instead of a number there are letters assigned. AAA means outstanding credit and very low risk. A company can also be AA, A, BBB, BB, or be to show they have a good credit history. Those with C's and D's are less likely to get corporate credit at a good rate. When you get into the D categories the credit may not be extended at all.
There are plenty of people that criticize the way the credit rating agencies classify a business though. The way they have their debts structured can give a very unrealistic picture of their overall creditworthiness. As a result of this some companies get credit when they shouldn't. By the same token some businesses will find it hard to get corporate credit even though they are doing well financially.
There are more than 100 credit rating agencies out there right now. Lenders have the right to use any of them that they want to. Most of them have ongoing relationships with a couple of them. This allows them to provide information to each other rapidly and reduce the length of time involved in getting the request for corporate credit approved or denied.
As a business owner, it is important to know where you fall with a credit rating. This way you can get a realistic picture of your ability to access corporate credit. If you don't understand what is going on with it, take advantage of the various free resources. They are in place to help businesses get the most from corporate credit.
About the Author
Robert Bain - veteran business owner shares his thoughts on obtaining business credit, even if you have bad personal credit. Visit href="http://www.corporatecreditpower.com">CorporateCreditPower.com to read more.
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