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Digital Edge
Home»Business»Why Bad Credit Doesn’t Have To Prevent Growth
Business

Why Bad Credit Doesn’t Have To Prevent Growth

Michael JenningsBy Michael JenningsMar 2, 2020Updated:Apr 11, 2020No Comments4 Mins Read

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!

Contents hide
1 Which Factors Impact Your Business Credit Score?
1.1 Bad Credit Doesn’t Limit Growth
2 Other Financing Options To Explore

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!

Michael Jennings

Micheal wrote his first article for Digitaledge.org in 2015 and now calls himself a “tech cupid.” Proud owner of a weird collection of cocktail ingredients and rings, along with a fascination for AI and algorithms. He loves to write about devices that make our life easier and occasionally about movies. “Would love to witness the Zombie Apocalypse before I die.”- Michael

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