How Can Bad Credit Affect Your Business?
Even with the economy growing at its current pace, being a small business owner is still a big responsibility to take on. You have to manage every part of the business meticulously in order to turn over a profit. This includes managing finances, projects and productions, marketing the products and services you’re offering, and keeping the day-to-day operations of the business running as smoothly as possible.
A bad credit score, however, can really hamper your small business’s growth. We’re not just talking about the business’s credit score either. With small businesses, banks and financial institutions tend to look closely at the owner’s credit history, how can bad credit affect your business?
Bad Credit Leads to Limited Financing Options
When you have a bad credit score as a small business owner, you may face difficulties in finding low-interest financing options for your business. Even when the business has stellar credit records, banks will still take your personal credit score into consideration.
This will effectively limit your financing options. You can still use secured loans and get great deals, but you’ll have to place a collateral to secure the loan. Alternatively, you can find loans designed for those with bad credit. You can find a good bad credit loan through the Money Hub or an alternative financing company.
Extended Payment Terms
Many vendors offer small businesses with good credit history better payment options for their purchases. When you have a bad credit score, you may not be able to get the same extended payment terms as you get when you have a spotless credit history. More importantly, you’ll be missing out extended payment terms of up to 120 days from the purchase date.
You can fix the issue by building a better relationship with your vendors. You may still have to deal with shorter terms in the beginning, but as you purchase more materials or services vendors usually allow you to use a more relaxed payment term instead.
No Prompt-Payment Discounts
It is not uncommon for vendors to offer prompt-pay discounts. These discounts will cut your invoiced amount by as much as 2% when you pay within 15 days of the purchase. The individual discount may seem small, but combined they can add up to thousands of Pounds worth of savings. They can certainly lower your costs in the long run.
The previous solution works in this case too. Maintaining a strong relationship with vendors is a great way to tap into these prompt-pay discounts and save more on your production costs.
The good news is that your credit score can be improved. Once you start making on-time payments and keeping your business’s cash flow healthy, you’ll be able to gain the trust of your vendors and financial companies. You can also pull your credit report and remove the incorrect entries for a nice boost on your credit score.
Bad credit score should not be in the way of your business’s growth. The market is growing at a steady rate and there are a lot of demands to fill. With the right financing and a good strategy in hand, you’ll be able to maximise your profits as you try to improve your business and personal credit scores gradually.