Poor credit history can be major financial impediment for individuals and businesses. The success and stability of the financial sector is dependent on people effectively managing their debts. A well-established history of making payments in a timely manner and intelligently using credit is crucial for a wide range of financial transactions today. As the owner of a new startup, bad personal or business credit can cause a lot of problems as you build up your business. Here are 5 ways how a poor credit history can hurt your business.
Banks Will Deny Loans
If you have bad credit, banks will deny your requests for loans or business credit cards. Loans are essential for new businesses like yours. You need a great deal of capital to buy equipment, lease office space and cover other start-up costs. Banks do not want to lend money to people they are unsure will actually pay it back. They only make money off of your loan if you actually pay it back. If you did not handle debt well in the past, they will not see the benefit in trusting you now. The inability to procure business financing and other personal loans is one of the most destructive consequences of having a poor credit history.
Even if you can find loans or other groups prepared to lend you money, the interest rates will be far higher when you have a bad credit score. These higher interest rates protect the lender in case you fail to pay back the whole amount. Lenders may also demand other restrictions as part of the deal of agreeing to provide you with business loans. For example, a common alternative line of credit for people with bad scores is a business secured credit card. In this line of credit, you have to have a savings account with the same amount you are borrowing in it at all times as collateral. These restrictions can make it even harder to get your business started. Higher rates will also cut into your profits. That is one of the most devastating ways how a poor credit history can hurt your business opportunities.
Renting Property Can Be Tricky
Bad credit will also affect renting office space for your company. Due to recent city consumer trends, most landlords will look at your credit score to determine if you can be trusted to pay up till the end of the lease. If they suspect you cannot, they may make you go through additional steps to secure the property. These can include higher deposits and more money up-front, once again requiring you have more cash on hand. In the case of the best office spaces, the landlord may refuse to rent to you at all. It could be worth their while to hold the space open for a better client with good credit. If you are trying to procure a new business location, having a bad credit history can really hurt your chances of achieving those business goals.
Problems With Utilities And Vendors
Utility companies and even distributors might charge you more for having bad credit. In both cases, these sorts of companies rely on charging you after they provide services. As a result, they will look at your credit score closely before providing services. Both utilities and distributors may require you to provide large down payments if you have bad credit. They also may increase their prices to protect their overhead or even establish 30 days payment terms for you to confine to. Just like banks, your bad credit puts these groups profit margin at risk. Ultimately, that makes for another situation in which your bad business credit rating will hurt your chances at success.
Block Your Company From Founding
All these problems combined can make it impossible for you to build your company at all. With a bad credit score, the only way to start a company and get around problems is to have a very large cash reserve. Or, you may have to offer collateral to give your business a chance at success. This buffer can protect lenders risks and ensure other companies that you have the means to pay back your debts. However if you do not have this buffer, there may be no way to convince them. In the end, a poor credit history can hurt your chances at achieving business success at all. This is a very high price to pay.
Bad credit can harm your business in a number of ways. It can make it hard to get bank loans. What loans are available will have higher interest rates and burdensome restrictions. Many landlords will not rent property to you. Many vendors will raise prices or insist on deposits. Without a cash buffer to provide, these issues may even prevent you from forming a company at all. To avoid these issues, make sure your credit is in good order before you found your start-up. Make a point to clean up credit ratings for your business, and you are sure to benefit from the financial advantages a good credit score provides.