Credit Score

4 Simple Steps to Repair Bad Business Credit

bad credit report

Business credit is a rose with thorns. The beauty of it is that you can rely on credit to get the business capital you need at the time that you need it. This can help your company respond quickly to changing market conditions, and get in early on new business opportunities.

The downside, however, is that if you miss payments to creditors, it leaves a mark on your credit score. The result may be the inability to borrow money in the future, lease real estate or equipment, or make sizable purchases on credit. All of these can act as direct hindrances to the growth, and possibly even the survival, of your business – even after you’ve dug your way out of debt.

Fortunately, there are a few strategic steps a small business owner can take to repair their business credit score. Let’s take a look at a few of the most important ones:

1. Communicate with your creditors

According to the Houston Chronicle contributor David Ingram, the first step to paving a road to better business credit is simply to get in touch with your creditors. At the end of the day, they want your money just as badly as you want to give it to them, so they’ll most likely work with you on creating a repayment plan that makes sense given the circumstances.

“Creditors may suspend your accounts and allow you to pay what you can each month until the debt is paid,” Ingram wrote. “Others may accept a settlement offer, closing your account for a lump sum payment that is lower than your total balance.”

The resolution doesn’t necessarily have to entail one of the two options above. The bottom line is that you and your creditors can typically reach an agreement, as long as you’re transparent with them about your current situation.

2. Build credit with the help of your suppliers

With a few exceptions, no business really survives in a vacuum. The vast majority of companies rely on third-party suppliers for raw materials, ingredients or wholesale goods. While some suppliers expect payment prior to delivery of these supplies, others will offer “trade credit,” according to Nerdwallet contributor Teddy Nykiel – and this very standard practice may actually be able to help you clamber out of bad credit.

Establishing trade lines essentially gives your small business the option to pay several days or weeks after receipt of the materials.

“If you have this type of accounts-payable relationship, ask your supplier to report your payments to a business credit bureau,” Nykiel wrote. “Your business credit score will get a boost as long as you stick to the terms of the trade agreement.”

Over time, this can help improve your overall credit score.

3. Make payments on time

It may sound like a no-brainer, but more often than not, late or missed payments are the reasons that a small business ends up with a bad credit score. Sometimes small business owners will pay late only because they want to have a certain amount of merchant capital available to them in a given moment – perhaps because they foresee a big expense up around the bend that could lead to significant return on investment, or maybe because they prefer to have that safety net available at all times.

At the end of the day, however, the best safety net for a small business is good credit, and you’re better off getting a cash advance on a loan than you are putting off on-time payments.

4. Take out a small-business loan

Late loan repayment may have been what got you into your credit pickle in the first place, so why in the world would anyone with bad credit try to take out a small business loan? Furthermore, is that even possible to do with bad credit?

In response to the first question, taking out a small business loan can actually be your company’s salvation. Often, bad credit is the sign of past indebtedness, or old mistakes that left a dent in your business FICO score. It could have even been the result of EIN theft, which despite reflecting poorly on your company, is in no way your company’s fault.

In response to the second question, regardless of the reason that you’ve ended up with a bad credit score, if you can feasibly repay a small business loan on time, there are plenty of alternative lenders willing to finance your business, despite a less-than-stellar credit score.

“Eliminating your existing debt is a positive first step, but your business will need to continue to borrow money to strengthen your credit rating over time,” Ingram wrote in the Houston Chronicle. “Remember that borrowing money is not necessarily a bad thing; a problem only arises when you’ve borrowed more than you can reasonably repay.”

If you’re confident in your company’s ability to pay off new debts, take out a small business loan. It’s one of the best ways to enhance your business credit score.

How to Get a Business Loan with Bad Credit and No Collateral

Bad Credit Business Loan

Small business owners can develop a successful, vibrant organization and still deal with common problems like bad credit and a lack of collateral. Does that mean your business can’t secure a loan?

While having good credit and collateral on hand can help you secure a loan in some instances, there are established, dependable alternative lenders – like National Funding – that can work with a wide variety of financial situations.

The problems you may encounter

Credit is a long-term situation, and items as old as seven years can have a major impact on your rating. Many times, people and businesses have bad credit because of limited resources, not conscious decisions that lower their scores. Both your personal credit score – calculated on a scale of 300 to 850 – and your business credit score, usually measured from 0 to 100, play a role for small businesses.

Turning the corner financially – by starting a successful small business, for example – doesn’t erase a credit score. You have to contend with your rating until items are resolved or fall off your report. That means complications when seeking loans from traditional lenders, like banks and credit unions. These institutions place significant weight on small business owners’ credit scores when deciding whether to lend money to a given company.

Collateral is a much different subject than a credit score, although its presence or absence has a similar impact on the loan decisions made by banks and credit unions. Some businesses simply have collateral that is easily used to secure a loan, while others don’t. Similarly, some business owners have personal possessions they feel comfortable putting on the line, but others don’t have that luxury.

While the Great Recession is in the rear-view mirror, the impacts of that economic downturn on banks and similar lenders led to the development of more conservative lending practices that continue to this day. Many small businesses that could have secured a loan in the past from traditional lenders cannot any longer.

A lack of collateral and a low credit score can mean extreme difficulty in securing a loan through more traditional means. Instead, your business needs to consider working with a more flexible and responsive alternative lender.

Overcoming these obstacles

Business loans for poor credit aren’t impossible to find. In fact, working with an alternative lender like National Funding can mean avoiding a number of the frustrations and other issues that arise when dealing with a traditional lender. As opposed to the severe and frequently hidden limitations on lending put in place by banks and credit unions, National Funding offers a clearly visible baseline standard that businesses can use to determine if they can start the process.

Does your business have:

  • A full year of operations under its belt?
  • At least $100,000 in gross yearly sales?
  • Three months’ worth of bank statements?

By meeting these qualifications, your company is starting off on the right foot when applying for a loan through National Funding. You don’t need to worry about the state of your business or personal credit score, nor the availability of qualifying collateral.

Of course, traditional lenders don’t only look at credit scores and collateral when determining creditworthiness. They may also require many months or years of bank statements, tax forms, detailed business plans and other documents that may be difficult to assemble to their exacting standards.

Working with National Funding means avoiding these lengthy, time-consuming and sometimes-painful processes in favor of a more direct approach. You can apply for a business loan between $5,000 and $500,000 through our easy, no-obligation application process and a decision in as little as 24 hours.

Business credit score 101

business credit score

You’re probably already familiar with the basics of a personal credit score (or FICO). As a refresher, this number will range between 300 and 850. You will incur a lower score if you don’t pay bills on time – these could be credit card payments, utility bills, loan balances or something else. This may negatively impact your ability to borrow money in the future.

A business credit score works much the same way, but with a few notable distinctions. Before diving into the deep end of business credit, let’s get our feet wet with some of the basics:

What exactly is a business credit score?

A business credit score, like a personal credit score, is a grading scale that lenders use to determine the risk involved with financing a business loan. This score will fall somewhere on a scale 0 to 100, according to NerdWallet. The ideal credit score will be somewhere between 80 and 100. A business that’s within this range will be considered less likely to make a late payment, which makes them a low-risk borrower. Any score between 50 and 79 is more of a gray area. Businesses with a score on the higher end of that range may be more likely to get a loan than one that has a score of 50. Any business with a score below 50 is considered to be at high risk of making late payments, and may therefore find it difficult to qualify for a loan.

How is the credit score determined?

Every business should ideally have its own tax ID that is separate from the tax ID of the owner. According to Entrepreneur contributor Asheesh Advani, this is especially important for anyone who has a damaged personal credit score. This is because any data that is tied to that ID is what will ultimately be used to determine your credit score. These include payment habits, outstanding balances (i.e. on utility payments, loans, etc.), public records, business size, years in operation and various other factors. As such, it’s important to keep personal accounts separate from business accounts wherever and whenever possible.

“You should consider getting a separate business address (not a post office box), a separate bank account, an official corporate name registered with local authorities and a separate telephone listing,” Advani wrote. “While these administrative chores might seem minor, they are critical in distinguishing you from your business.”

It’s worth noting that some small lenders and banks may assess your personal credit score while they consider your business’s candidacy for a loan. If you have relatively strong credit, this shouldn’t be a problem; however, it the inverse is true, you may struggle as you apply for small business loans.

Who’s keeping score here?

There are three primary credit bureaus that supply a business credit score: Dun & Bradstreet, Equifax and Experian. For personal credit reports, Dun & Bradstreet is substituted with TransUnion, and a free credit report is supplied every 12 months. Business reports, however, are never free. Dun & Bradstreet charges $61.99, Equifax charges $99.99, and Experian charges $36.95.

As mentioned before, each of the three scores will be accomplished through aggregation and analysis of business account data – payment habits, outstanding balances, etc. There will be some minor variation between the types of data that each of the three bureaus gather, which means that there may be some variation between the three scores.

How important is your business’s credit score?

The answer here really depends. If, for instance, a business is sure that it will never rely on outside funding, then the company’s credit score might not be terribly relevant. That said, a bad credit score is typically symptomatic of bad times – or just extreme irresponsibility – regardless of whether you’re borrowing money.

However, if you are intending to take out a small business loan at some point, it’s important to take actions that will boost your credit score, avoid mistakes that could damage it, and to check it once a year. A bad credit standing could influence your business’s ability to borrow money when times are tough.

My business credit is bad and I need funding now. Is all hope lost?

The answer is no and you’re not alone. There are plenty of businesses that find themselves between a rock and a hard place when the time comes to apply for extra funding. Likewise, there are a bevy of business loans for poor credit available. It’s really just a matter of knowing where to look, and National Funding can point you in the right direction.

So while your credit score is important, having a bad one is not a death sentence for your company. There are still options that will help you keep your head above water.