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Why Bad Credit Doesn’t Have To Prevent Growth

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A good credit score is an important component of a healthy financial situation. Increasing your credit score will give you access to credit lines with lower fees and will help you qualify for a mortgage when you’re ready to buy a home.

Your business credit score is similar to the way personal credit scores work, but the impact of a bad business credit score isn’t as significant as a bad personal credit score. You can have a bad credit score and still achieve growth with your business!

Which Factors Impact Your Business Credit Score?

Let’s take a closer look at the different factors that impact your business credit score:

  • Paying off your bills on time and making business loan payments on time will improve your score. You can lose points if you’re late on these payments.
  • Your personal credit score can impact your business core. Young entrepreneurs with a limited personal credit history, or a high credit utilization rate due to a mortgage or other forms of date often result in a low business credit score.
  • A limited credit history for your business can lower your score. It takes time to build your credit history.
  • Your credit utilization rate matters. It’s hard to launch a business without borrowing money, which means that most new businesses have a high credit utilization rate due to a high loan balance and limited amount of credit available.
  • Your business structure, size, and industry can impact your credit score. Some industries are perceived as riskier than others, and small businesses typically carry higher risks.
  • A bad credit score is something that lenders expect when dealing with new businesses or businesses in industries considered as risky.

Bad Credit Doesn’t Limit Growth

A bad business credit score is going to make obtaining a traditional business loan more difficult. The truth is that a majority of businesses don’t qualify for traditional loans offered by banks, either because of their credit score or for other reasons.

You might be able to get a traditional business loan even though you have a bad credit score if you can get a co-signer who has a better credit score. Using your equipment or another asset as collateral can also make a difference.

Other Financing Options To Explore

Traditional business loans aren’t the only way of securing financing for your business. It’s difficult to qualify for a traditional loan, which means there is a strong demand for other financing products, and you can easily find financing adapted to your needs and budget.

Here are some alternatives to explore if you don’t have a good business credit score yet:

  • The Small Business Administration offers loans that are backed by the government. There is a time-consuming application process, and you have to meet specific requirements, but lenders will see the loan as low-risk since it’s backed by the government.
  • You can find specialized loans designed to help you purchase real estate or equipment and use these assets as collateral.
  • If you need short-term financing, a business line of credit could be worth looking into. It’s a flexible option that is similar to the way credit cards work.
  • You can borrow money and use invoices as collateral with invoice financing.
  • Invoice factoring is another option that allows you to sell your invoices and get an advance on your future cash flow. According to altLINE, a leading factoring company, it does not significantly impact your credit either. 
  • A merchant cash advance gives you the possibility of borrowing against future credit and debit card sales.
  • A lot of businesses are launching successful crowdfunding campaigns online.

A limited credit history and bad credit score are fairly normal for new businesses. You will build your credit score as you grow and manage financing and payments. Most businesses use a combination of the methods mentioned above. Ask yourself which ones make the most sense for you!