Companies are constantly telling us that access to finance is key to their expansion as conditions ease after the economic downturn.
But the British Chambers of Commerce says that many business owners are experiencing challenging times when it comes to securing credit from banks.
Some firms are being restricted in their growth plans by negative credit ratings.
Chicken and egg
They were originally designed to be a prudence barometer to would-be tycoons’ natural entrepreneurial zeal.
But some credit scores are now holding businesses to ransom, training firm owner Judi Brazkiewicz told the Guardian.
Poor credit scores, she said, can mean the difference between being able to change banks or not, making a major purchase, or even switching mobile phone services.
It’s a chicken and egg situation, especially for new businesses which haven’t got the track record to win the trust of the lenders. You need investment to help bolster profits. So how can businesses break out of this vicious circle?
Brazkiewicz says the often no-can-do UK should adopt the US attitude and not fear failure.
Check your credit rating first
As with anything in life, you can only tackle a problem if you know the extent of it. So first get your credit score checked with one of the leading credit bureaus, such as Equifax or Experian. Be aware that some sites which offer “free” credit scores sometimes require business to subscribe to a regular service first.
What can you do?
If your credit score comes back a bit on the low side, there are a number of steps you can take to bolster your rating.
There’s no way around this. Paying on time can win you many friends in business and the banks’ approval over time. This will obviously take time to build up a reputation. But there’s no real incentive to hold on to your payments with interest rates so low. If you don’t pay on time – or at all – you can run the risk of appearing on a county court ruling register. This can stain your record for a maximum of six years.
Some credit checks can reveal errors on your history, such as a dispute with a mobile provider which you won but the phone firm didn’t bother to take off your credit record. Credit firms are obliged to probe these queries within 30 days.
Establish a new credit ceiling
Opening up too many loans simultaneously will have a derogatory effect on your score.
Don’t cash in older accounts
This is particularly the case if you’re a new business without a track record. If you’ve been with the same bank for 10-20 years with no snags, whether in another business or as a personal customer, this can only reflect favourably upon you.
Reduce your balances
The less credit you are using, the more your score escalates. So reduce your own credit balances to a minimum.
Undertake credit checks on your firm’s customers
If they can’t pay, you won’t be able to. So check their accounts so that they don’t leave you falling short.
When signing long-term, regular deals, try and get a clause written into the contract about regular pay dates, for example, the first of each month. This way, you know when money is coming in.
Pursue late payers
The usual payment ceiling is 30 days. After this time, firms should contemplate charging interest.
Posted by the Secret Businessman