3 Adverse Effects Of Poor Business Credit

Bad business credit can impact your life in many different ways,  even if its effects might not be the most obvious. The reality is that it’s not just your personal finance that gets affected by bad credit.

For entrepreneurs today, there are multiple options to choose from when it comes to seeking additional working capital. But, if you want to be in a position of being able to capitalise on the right option for your business’s current needs, you will have to ensure that both your personal, as well as business credit is in a reasonably healthy state.

How Can You Be Hampered By Bad Business Credit?

Some effects might be more noticeable than others, still you should keep in mind a lot of important things pertaining to business finance that we will talk about over the course of this article. Any lack of awareness can suitably impact your ability to run and grow your business. Here we focus specifically on three negative side effects of adverse credit and how it could potentially hamper the growth of your business.

1. It Negatively Impacts Your Chances Of Securing A Business Loan

Perhaps the most common by-product of bad credit revolves around the difficulty in securing capital for your business through loans. It is one of the first things every business lender goes through when evaluating your suitability for a business loan. In a sense it’s exactly similar to how a bad personal credit score affects your chances getting a good mortgage agreement.

Just to be clear, you don’t need to boast a near spotless credit history to secure a business loan, but a low score will be flagged as a warning sign for any lender, which considerably decreases your chances of being approved for it. It indicates that you don’t have a good track record of repaying your debts on time or managing your personal finances efficiently.

While some business loans can still be availed with a poor credit score, the terms and repayment schedule offered on those loans will be based on your credit history. Bottom line, the chances of getting favourable terms or repayment schedule for a business loan is close to nil.

Additionally, it is not just your business’s credit score that will be put under the microscope. Many lenders tend to look at an entrepreneur’s personal credit history with a fine tooth and comb before determining their eligibility/suitability for the loan. So, bad personal credit history can affect your business when you are looking for extra capital and vice versa.

2. It Can Lead To Issues With Vendors

Another potential negative by-product of poor business credit that many entrepreneurs tend to ignore is that they don’t get much leeway from their lenders. Your credit history can significantly hinder your chances of fulfilling various operations along with order needed supplies.

Most property management and utility companies will examine your business’s credit score when evaluating your suitability for renting a particular office space or when it comes to opening a new account with the electric company, along with potentially many more side effects.

Now, if you operate in the manufacturing or retail niche, a poor credit score will hinder your ability to purchase retail stock, necessary equipment or raw materials required for manufacturing. If you are looking to negotiate a payment plan with your distributors for payment of their products, a poor credit score might potentially scare a lot of people away.

Even if you are able to purchase the necessary products/raw materials, you would not be privy to the many discounts or offers that are usually provided by lenders to business owners with a good credit history.

3. It Can Hamper Your Chances Of Getting The Business Off The Ground

If your personal credit history is poor, your dream of opening your own business will remain, well, just a dream. Getting any business up and running entails a lot of start-up expenses such as renting a new office space, buying equipment, stocking up on the required inventory, amongst many others.

To fulfil these expenses, you will need to secure extra working capital, which can prove to be particularly difficult if your credit score is low. Even if you somehow manage to secure a loan, you can forget about ever getting favourable repayment terms on it, irrespective of whether you are approaching a high street bank, asset based lender or peer to peer finance provider.

This means that you will put an end to all your dreams of entrepreneurial success before you even get the chance to start.

Of course this could vary from one lender to another, but it is vitally important to keep these facts in mind if you ever plan to start your own venture – especially with a less than ideal credit score.