Small businesses often operate within very tight margins and so having easy access to credit – even if it’s hardly used – gives peace of mind as well as financial security. The problem is that small businesses sometimes have scant credit records and this, alongside other factors, can make obtaining credit difficult. We’re going to look at some other factors here now.
It doesn’t pay to shop around
Once a business owner has been turned down for credit by a bank or financial body, trying several more to try to find a sympathetic one just makes things worse.
Creditors look at how many times an individual or business has been turned down, and the more times this happens, the less likely it is that anyone will make an approval. Once the so-called primary market – banks etc – has rejected a business, the company should turnto the secondary market, for example peer-to-peer lenders. The Business Credit Workshop is a useful resource if you’re looking for direction and advice.
Managing your own risks is vital
The secondary market can also be a good choice in helping not only to establish a predictable cash flow but also in safeguarding valuable assets such as accounts receivable.
The secondary credit market is also really useful to small businesses as it can help to safeguard resources and assets like accounts receivable. Many small businesses use invoice discounting to maintain cash flow (they “sell” an entire invoice to a provider, who gives back up to 90% of the invoice value to the business). Before accepting an invoice for discounting, the discount provider checks the trustworthiness of the company to be invoiced. Many small businesses don’t have the time or resources to do this themselves, so finding someone who essentially does it for them improves cash flow and security.
Did you know…?
You could be sabotaging, or at best failing to improve, your business credit rating by ignoring the many other influences on your rating. Many people think it’s just about paying bills on time, but it’s not, which is good news if you want to better your score.
Look at your latest credit report
Make sure you examine the negative category carefully. Are there any mistakes there – companies you’ve never heard of, contracts you thought you’d cancelled ages ago? You should also look for out-of-date information, or for any signs of identity theft. Most cases of identity theft are overlooked because they involve regular small sums.
Ask your vendors to report your payments
If your vendors report your payments to the credit agencies, it creates a positive history for the reporting bodies to see, raising your rating.
If you have a bad credit rating
You need to start paying it off, even if it’s bit-by-bit. Reducing the balance on your business credit cards can improve your credit rating quite rapidly.
This may not seem obvious, but…
If you’ve already got good credit, ask for an increase – this lowers the proportion of your available credit that’s being used, upping your overall rating.