Credit is essential for any business because it enables you to buy inventory, even out your cash flow, and ensure your operations run smoothly. Without a loan, you may have to postpone buying inventory, making repairs, or paying employee salaries which can help your business in the long term.
A loan can also help expand your business, buy new equipment, or open a branch in a new location. It provides you with the financial muscles needed to succeed.
However, bad finances, poor debt management, and low credit scores can affect your business’s ability to get credit and expand.
When borrowing funds for your business, the lender evaluates your loan application to assess your ability to pay. The lender may request a cash flow statement to assess the inflows and outflows against your declared income sources. Normally, they may require supporting documents such as receipts and tax returns to support your application.
The lender may generate a credit report to ascertain your creditworthiness and how well you can manage your debts. Poor debt management practices can increase the cost of doing business.
There are steps you can take to improve your credit score. Check your business and personal credit score regularly to help identify any items dragging down your ratio. Pay your bills on time, including utility bills, loan payments, credit card bills, rent, and online loans.
Maintain a low credit utilization of 30% and below by borrowing only a small portion of your available credit lines. Another way to improve your credit score is to use a debt consolidation loan.
If you have many loans, you can consider a debt consolidation loan, which involves rolling various debts into a single payment. It can work well if your loan portfolio has high-interest products like credit card bills. Consolidation of debt allows you to enjoy a lower interest rate and enables you to organize your finances.
Stay disciplined with your loan applications, as every inquiry is reflected in your credit report. Many hard inquiries can harm your overall score.
Bad finances, poor debt management, and bad credit can affect a business in many ways. It can increase operating costs and deny business credit to meet its financing needs. However, following the above tips can help you improve your score and manage your debt.
The WorkFlow podcast is hosted by Steve Glaveski with a mission to help you unlock your potential to do more great work in far less time, whether you're working as part of a team or flying solo, and to set you up for a richer life.
To help you avoid stepping into these all too common pitfalls, we’ve reflected on our five years as an organization working on corporate innovation programs across the globe, and have prepared 100 DOs and DON’Ts.