Bad Credit Small Business Owners Should Focus on Credit Repair
Credit is a big issue in both the commercial and residential worlds. For consumers, good credit means expanded purchasing power and lower interest rates on loans. It offers them the ability to take steps to grow their personal wealth. For businesses, good credit does much the same. It also allows businesses to pay vendors timely, keep their cash flow stable and expand when ready. Some bad credit small business owners face massive difficulties with even small loans. Even when a business is highly profitable, bad credit small business issues can still crop up.
For example, many vendors require deposits on large orders unless a business has credit with the vendor. Bad credit small business owners face the fact that they will have to make those deposits, impacting their cash flow. Bad credit small business owners also deal with higher deposits on things like mobile phones and other utilities along with inventory purchases. Paying the increased upfront expenses often means that the business is more financially viable than other businesses operating on tighter margins, but with better organizational skills. All the money in the world will not help your credit if you simply forget to mail the check timely. Repeated late payments eventually bring down credit scores tremendously. Therefore, it is crucial that small business owners work to protect their business credit. A business credit score is directly tied into the company’s reputation. When a business has a low credit score it is sometimes difficult to find new vendors. While low ticket vendors have few restrictions providing the business pays up front, more exclusive vendors often limit the stores that can carry their products.
Some vendors require very restrictive contracts on their inventory. For example, Stuart Weitzman, a high end women’s shoe producer requires a business to have an attractive store front, nice display space and a high credit score, before they will approve a business as a licensed carrier for their products.
Because so much can rest on a business credit score, it is imperative to improve a bad credit small business score as soon as possible. Some strategies that a business can pursue are to immediately start making all payments on time. Many banks offer the option to automatically deduct payments on certain days of the month. Combined with automatic deposits for credit card sales, this can help a business avoid unintentional late payments. Six months of timely payments for all outstanding debts will improve a credit score. The next step is to assess the business’ credit to debt ratio. If the business has debt almost equal to the amount of credit it has, it needs to pay down its debt load. If it can maintain a credit to debt ratio of less than twenty five percent, this will also improve its credit rating.
If a business owner is not able to make payments in a timely fashion, it can be an indicator of financial difficulties. If a business is having that many problems meeting day to day expenses, increasing their debt load will not help them become solvent. Only trimming expenses and increasing sales will improve solvency.