If you own a small business, you need to have the money available to help it to survive and grow. This is not always easy if you have issues with credit. If this is the case, it can limit your access to funds.
This is why you need to understand how to deal with poor credit. Bad credit loans for businesses do exist and you also have the opportunity to use credit cards with bad credit. However, in addition to considering these options, you also need to take action to improve your business credit rating in the long term.
Ways to improve the credit rating of your business
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Although you can apply for a loan if your business does not have good credit, your choice of lenders is limited. For this reason, it makes sense to improve the credit rating of your business, so that you have better access to credit in the long term. There are several things that you can do to help make this happen.
- Know what your credit score is.
If you do not know what your current credit rating is, you cannot hope to improve it. You should use a company such as Equifax or Experian to check your credit score so that you know the current credit position of your business.
- Always pay bills on time.
This is an obvious way to improve the credit standing of your business. If you do not pay your bills when you should, this is likely to have a detrimental effect on your credit rating. It’s as simple as that.
- Keep your credit utilization ratio down.
Ideally, your credit utilization ratio should not be higher than 15%. This ratio is the amount of credit you have used compared with the total credit that is available to you.
- Use credit accounts with suppliers.
If you have regular suppliers that your business works with, you should set up credit accounts with them. Doing this helps to improve your credit score, when you make payments on time.
- Check for errors and dispute them.
There is no guarantee that the credit report for your business is correct. You should check for any errors and make sure that they are rectified.
Taking action to improve the credit rating for your business makes it easier for you to get the credit that you need. However, this does not mean that a loan application is guaranteed to be accepted.
Reasons why businesses are refused loans
Aside from a poor credit rating, there are other reasons why a business may be refused a loan
- Insufficient cash flow.
It’s more likely that your business will be refused a loan if there is insufficient cash flow each month. It’s important to make sure that cash flow is as consistent as possible.
- Lack of collateral.
Some lenders require a valuable item of collateral to be available, in order to approve a loan. This can be a big problem if your business is small.
- Debt to income ratio.
As mentioned earlier in this article, a high credit utilization ratio can be a big problem. If you have already used a high percentage of the credit that is available to your business, it may be difficult to acquire additional funding.
- Lack of customer diversity.
Lenders tend to be skeptical of a business that secures most of its income from just a few customers. For this reason, it makes sense to diversify the customer base of your business as much as possible.
- Lack of operating history.
Lenders often give preferential treatment to businesses that have been in existence for a number of years and have a good track record. This can make it difficult for newer, smaller businesses to get the credit that they need.
Given that there are so many potential obstacles to obtaining credit, you may have to look at the whole picture. You should consider how you can reduce costs as well as considering funding options.
How to reduce business costs
Reducing costs can be a big help if you have problems obtaining finance for you business. There are several steps that you can take when you are attempting to reduce costs.
Reduce the cost of supplies
Using supplies, such as stationary, can be costly for a business. Making savings in this area can be highly beneficial. One of the best ways to do this is to contact various providers and explain that you are attempting to negotiate long-term provision of supplies. Doing this should mean that you can secure preferential rates.
Cut the cost of production
As a business owner, you need to make sure that your production processes are optimized. This includes making sure that your production costs are as low as they can be without effecting efficiency and quality. Ways of reducing costs include limiting waste and renting out space in your premises that you are not using.
Review marketing efforts
If your marketing campaigns are not providing good returns on your investment, you need to rethink them. You can only do this if you analyze the effectiveness of your marketing and act on any issues that you identify. Doing so helps you to optimize your marketing budget and reduce costs.
Improve productivity levels
Wasting time is one of the easiest ways of wasting money, in a business environment. For this reason, you need to look for ways to improve productivity. This could involve modernizing your processes or incentivizing your employees.
In summary
It’s possible to obtain a bad credit loan for your business. However, the number of lenders that provide this type of loan is limited. This often makes it difficult to secure credit. You may want to think about improving your credit rating, in order to make it easier for you to obtain the credit that you need. It’s also important that you look at ways of reducing costs in your business. Doing so makes it easier to grow your business without having to rely on credit.
Raj Kumar is a qualified business/finance writer expert in investment, debt, credit cards, Passive income, financial updates. He advises in his blog finance clap.
