How Better Credit Helps You to Succeed in Small Business

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Most financial institutions will look at your credit history when you apply for a loan. It doesn’t matter whether you’re going about it as an individual or as a business. 

The credit report provides critical information to the lenders. They will look at your repayment history to determine whether you are a good or bad risk. Poor repayment records show that giving you financing may not be a good idea. 

But, it does not mean that the lenders will turn you down. Some offer bad credit loans, with one condition. You will attract higher interest rates than what you would pay with a good credit score. The extra amount provides some kind of protection to the creditors.  

Financial advisors will tell you to separate your personal and business credit with good reason. Read on to understand more.  

Business and Personal Credit; What You Need to Know

A personal credit report looks at your financial history. As we have stated, lenders use such information to determine your creditworthiness. 

But that’s not all. A poor credit score can impact your life in a profound way. You could miss out on job opportunities. Aside from that, some tenants will not lease property to people with poor credit scores.  

Business credit reports focus on the business and have nothing to do with your personal credit.  The credit reference bureau attaches the personal credit score to your social security number. Business credit uses the employee identification number (EIN).  

A good score avails the same benefits you would get as an individual but to your business. Such include lines of credit, business loans, and trade credit from suppliers and lenders.   

So what happens in the case that your personal credit is not good but you need financing for your business? Well, remember our earlier point on separating your personal and business credit? 

The credit check will not touch your personal credit history. They can only seek information on your business credit.  

Now here is some good news. It is possible to rebuild your credit score with the help of credit repair professionals. A poor credit score does not always mean that you are not good at making repayments.  

Sometimes an error in the report can hurt your score. The reporting agencies may also fail to remove a collection account from the credit report Identifying and fixing such errors can be a tedious process.

If you do not have the expertise, you may miss critical information. Please consult credit repair professionals on what to do. They can also offer monitoring services to ensure your reports are as they should be.  

Also Read: Writing A Press Release For Small Business

Why Good Credit is Critical For Your Business

At this point, you have a pretty good idea of why good credit will benefit your business. Do take the time to look at your credit reports at least once every quarter at a minimum. If you can do it every month, the better. 

Always aim to keep the score within the 80-100 range. The closer to 100, the better. For personal credit, anything ranging from 800 and above is excellent.  

We can summarize the salient points of having good business credit scores as follows. 

  1. Access to Loans at Competitive Rates

Lenders like to be sure that they will get back their money. But, your credit score shows that you do not pay suppliers or vendors on time. 

Some have even sent debt collectors to you, so there is a collection account on your report.. Don’t fret too much on this, as we said, credit repair agencies can remove a paid collection account from the credit report. 

Now, the lenders have two options. The first is to deny your request for funding. The other is to provide a bad credit loan to you. The interest rates may make the loan too expensive for your small business.  

  1. Good Credit Improves Chances of Higher Loan Amounts

Bad credit loans can avail funding for your business. But, the lenders may not be willing to give you a high loan amount. They would not be willing to place themselves at risk of not getting back their money.  

Even if they charge high interest, it is not an immediate assurance that you will pay. Good credit is a sign of responsible money management. The institutions will be more willing to negotiate higher amounts with you. 

And, they will be more agreeable to longer payment terms. It allows you to manage repayments in a more comfortable manner, depending on the business capabilities.  

  1. You Can Negotiate Better Terms with Suppliers

Suppliers are careful about the type of businesses they deal with. They will not avail credit lines to any entrepreneur or company with a poor credit score. Yet, it can be very difficult for a small business to operate on a cash-only basis.  

Good credit scores are a sign of financial stability, and good money management. Remember, suppliers will run a credit check before entering into negotiations with you. 

Even without a business credit score, they will need to see that you have a good personal credit history.  

  1. Good Credit Allows For Business Growth

You do not start a business without growth projections. And, this is only possible if you have sources of financing when you need them. Business loans can provide cash for startups or small business owners. A good credit score is a sure way to achieve scalability.   

Also Read: 5 Ways to Improve Your Small Business’ Cybersecurity

Final Thoughts

Good credit scores are critical for anyone who is operating a business. The good news is that you can separate your personal and business reports. Lenders and suppliers can access business credit reports to check your creditworthiness. 

Poor credit scores can make it difficult for you to get financing. Even when you do, be ready for high-interest rates, lower amounts, and shorter repayment timelines. Keep a close eye on your credit scores. 

You can get the reports from using online resources like the Experian business credit report. Other sources are Dun and Bradstreet Credit Signal and Nav Business Credit Report. Do note, some platforms are free while you must pay on others. 

The other alternative is to get a credit repair company to monitor the reports for you. If you notice any errors or inconsistencies, credit repair professionals can help rectify such.

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