What is credit rating and why does it matter for acquiring business financing

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Explanation:

Credit rating is the analysis of the financial risk associated with lending money to an institution or an individual. It involves an evaluation of past debts repayments, incomes, and the possibility of incurring more obligations to determine creditworthiness. A credit rating is a quantitative measure and is expressed as a credit score. The higher the score, the better it is for the borrower.

Credit rating is important for a business in acquiring finance for the following reasons.

1. Credit rating affects the interest rates chargeable by lenders. A business with a high credit rating is considered less risky and will be offered a low-interest rate when borrowing. Lower credit rating attracts high-interest rates.

2. With a high credit rating, the lenders will not demand a high deposit. This makes it easier for businesses to borrow.