Can leasing build a credit score for your business?

Johnson Reed
3m read

Credit scores can be just as frustrating for businesses as individuals. A poor credit score, or a lack of one in the first place, can be a thorn in the side of your plans to grow or invest.

Johnson Reed have already written about how to keep your business credit score healthy, so you’re in a good position to make a finance application. But can leasing build a credit score?

Here, we offer some more insight and explain why it’s a prime option for any business.

Isn’t leasing another form of debt?

In a sense, yes. But leasing is separate from other forms of finance because you pay a fixed amount on equipment, facilities or software with no jumps in price over the payment plan, unless they’re agreed to.

Leasing at its basic level doesn’t equate to borrowing money. The upfront cost is merely split over a period that suits you. Companies that need certain tools can pay for their investment as it becomes profitable, instead of all at once. That’s why leasing is proving more popular and accepted – it is too flexible, in many instances, to turn down.

The ‘pay as you go’ structure is very welcome to those who may need something for their business on a temporary or ad hoc basis. Leasing can probably help you too. The question is, what impact will it have on your credit rating when it comes to a finance assessment?

Only a portion of the credit puzzle

First, know that a lease agreement technically counts as an obligation, since you’re contracted to pay X amount over several months or years. It can harm your score if you don’t pay it back.

The good news is that specialist lenders – such as Johnson Reed – don’t go on credit score alone. If you can prove that profits are ticking over well enough, and will increase once the lease begins, then you’ll have a strong change of acceptance. It will benefit your score moving forward because, as ever, regular repayments prove that you’re able to do the same for another line of credit.

Other methods of boosting your score involve updating your data on Companies House, gaining a consequence-free credit check, and staying aware of your business’ outgoings. Some of these are more time-consuming than the others, yet every step counts when it comes to your credit profile.

So, can leasing build a credit score?

You’ll be pleased to learn that leasing is in fact one of the quickest action points towards a strong credit score. Not only are you spreading the cost of things such as equipment and side-stepping the upfront investment, you’re also making a positive impact on your future business finances.

Of course, there’s a risk of taking out too many leases at once or failing to stick to your repayment schedule. You can understand why this may be a worry to lending partners. Don’t panic, though. A reputable lender will be able to assess your finances and advise on what’s feasible and sensible.

Usually, poor credit scores are a barrier to finance, even when the whole purpose is to raise that same score with a debt plan. We work a little differently. Johnson Reed look at far more than a credit rating when we consider new clients – it might just be the factor that sets you on a path towards leasing approval and, by extension, a healthier credit report. Contact us to learn more.