Common Credit Obstacles for Small Businesses
Virtually every small business needs to have a good credit score working in its favor. Without this vital tool, a business may not have access to all of the opportunities that it needs to succeed, and it may have to spend more money than necessary to facilitate growth. Unfortunately, companies don’t start off with great credit. Building it takes some time and resources, and just about any type of shaky start or growing pains that occur during a company’s financial development may represent a serious setback.
There May Be No Credit Background
Establishing good business credit takes some type of credit activity. Companies need active tradelines on a credit report in order to generate any score. A small business that’s relatively new may not have any credit card history or outstanding loan obligations. As a result, it simply may not have any credit. The best solution to this problem is to take advantage of whatever chance to build credit comes within reach. However, businesses must approach this preliminary step with caution. Not having credit may make a company subject to higher interest rates on loans or credit cards. When a company utilizes credit that bears a higher interest rate, it should do so judiciously.
Personal Credit Matters
In its developmental phases, business credit may be held back by personal credit. In the absence of a lengthy credit history for a business, lenders and credit card companies want to glean what they can about a business’ chances for success by learning about the personal credit history of the principals. A small business owner who has problematic personal credit may have some trouble inspiring confidence in his or her business.
Late Payments Have Lasting Consequences
Getting a business off the ground and developing a manageable budget may involve a little trial and error. This isn’t because of poor financial management. It’s attributable to the fact that companies don’t really know about what impediments or contingencies to their financial plans they should reasonably anticipate before they actually happen. Companies have to be very conscientious about avoiding late payments to avoid harm to their credit score.
The more that small business owners know about credit, the better equipped they’ll be to make good choices that lead to excellent scores. They should take some time to review some of the most common challenges that small businesses have to contend with on the path to building credit.
