Three Effects of Bad Credit on Small Businesses
Even if it isn’t always obvious, your credit score can affect your life in a number of ways and it can have an impact on more than just your personal finances. If you’re an entrepreneur, both your personal credit and your business’s credit can come into play over a variety of financing needs.
The Negative Effects Bad Credit has on Small Business
Some of them may be a little more obvious than others, but it’s important to keep these things in mind when considering any kind of small business financing or financial matter, as they could very easily affect your ability to conduct business, grow, and succeed. We’ve rounded up the three most important side effects of bad credit here and what they might do to impact the finances of your small business:
Bad Credit Hurts your Ability to Obtain a Business Loan
The first, and perhaps most commonly-known side effect of bad credit, is an inability to get loans or financing. Much like with your personal credit, business credit is one of the first things small business lenders look into when determining your eligibility for a loan. Your credit score doesn’t have to be flawless, but a score that’s too low might be a warning sign that you won’t be able to repay your debts or manage your finances properly.
While there are business loans offered for bad credit, the terms tend to reflect your poor credit score and may not be as flexible as standard small business loans. (And it’s important to mention that it isn’t always just your business’ credit, either – many lenders will take a look at your personal credit score too, as one can easily affect the other.)
Bad Credit in Small Business often causes Issues with Vendors
Another effect of bad credit for small businesses is one that business owners might not consider as often. Depending on what your business does, your credit score may affect your ability to conduct operations and order needed supplies.
Many utility companies and property management companies will consider your credit score when determining your eligibility to rent office space, open an account with the electric company, and more. Above and beyond this, if your business operates in retail or manufacturing, you may find yourself unable to buy retail stock, raw materials for manufacturing, or needed equipment with a bad credit score as many distributors will look into your credit rating before selling you their products, particularly if you’re trying to get on a payment plan.
Even if you’re still able to order their products, many vendors will offer discounts or different payment plans for higher credit scores, which may be inaccessible to you if your credit is less than perfect.
Poor Credit can Prevent you from Starting a Business
Finally, if your personal credit is bad enough, you might be unable to start a small business at all. Many small businesses require a number of loans to cover basic start-up expenses like buying office equipment, renting a space for the business, getting stocked up on inventory, and so on. A poor personal credit score can affect your ability to get the financing you need to start your business in the first place, which could mean your plans for a small business might be over before they even have a chance to begin.
Of course, every vendor and small business funder will be different, but these are always important facts to keep in mind when trying to find funding and supplies for your small business – particularly with less-than-perfect credit.
Want to learn more about business credit, and how lenders consider your score when making funding decisions? Download this free journal – a collaboration with the credit experts at Experian!