Credit Score Crucial for Small Businesses Too

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There are millions of different models to start up a small business. Owners can focus on growth, profitability and even employee satisfaction. None of them will last a day without the intangible element of trust. How can a business show investors, partners, shareholders or clients it has tangible trust? Its credit score is a good measurement.

Credit score is a snap-shot synopsis of where an individual or company sits in terms of making good on repaying past loans or the likelihood of repaying future loans. Creditworthiness is another term for this. Like a bad resume, credit score can work against you more than for you. There is a tangible value from putting forth the time and effort necessary to fix this. Taking the long way around will ultimately lead to big savings for the business.

Banks only loan to individuals they believe can and will repay the debt. Businesses can find immediate value from fixing their credit in garnering lower interest rates, awarding larger loans and having increased leniency in repaying said loans. If the bank does not trust the owner or entrepreneur they can request a personal guarantee which puts the onus entirely on the individual for the transgressions of the business.

If a business can establish good credit – either on their own or with some help they can avoid having to succumb to the demand of a personal guarantee. A co-ownership can be a benefit for a company in that it can use each individual’s personal credit record to create a suitable score. This could possibly create an unequal partnership if it is such that one person does the work and the other is solely a partner to help the sum of the parts have an acceptable credit rating. This partnership can suffer when the work is done by one but the profits are split by two.

The three digit credit report is generally seen as this: good standing is 800 or higher while 680 or lower requires immediate improvement. Operating a business with a credit score of less than 680 is essentially like trying to buy a house with a $100 bill. You’re not in a suitable position to start out with and things are probably going to only get worse. It is vitally important for businesses and entrepreneurs to right the wrong before they get knee deep with the banks they will have to repay regardless.

To summarize; as a small business owner, you have better control of your destiny if your credit score is 720 or higher. If you are short of that number, you subject yourself to the mercy of the lenders. You may have extra hurdles such as higher interest rates, under funding, poor partnerships and even outright denial. Righting the ship by improving your credit score can lead to smooth sailing in all of your business endeavors.

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