Last month we talked about Merchant Cash Advance Lenders and the absurdly high-interest rates paid for quick cash. E-z to get into-Hard to get out of.
One of the reasons for businesses to turn to those type of lending deals is the fact that since the recession of 2008, traditional banks have tightened their lending amounts and qualifications for loans. The other reason is that some businesses may have struggled during those hard economic times, and their credit ratings have dropped.
Here are some ways that you may accidentally hurt your business credit.
Checking your Credit Report
Just like personal credit reports, you should also be diligent in checking your business credit. A Wall Street Journal survey showed that 25% of small business owners, who regularly monitor their reports, found credit-damaging errors.
The mistakes can be something simple and at times easy to overlook, such as an incorrect industry classification code. A real-estate brokerage firm might be coded as a “real-estate investment” company, which carries a higher credit risk. Another mistake could be outdated revenue figures.
Perhaps your business profile is mismatched with another business. Unlike personal credit reports that use your name, Social Security number, date of birth, and address to verify your identity, business bureaus only use the business name and address—but the data does not need to be exact. With the prevalence of DBAs and similar street names, it is easy for your business to be confused with another.
Business Credit Cards
Many small businesses, when just starting out, will use their personal credit cards to fund the operation. However, maxing out your personal credit card damages your personal credit score and does nothing to help your business credit score. In fact, having a thin business credit file can be just as damaging as having poor credit.
The best thing to do is open a couple of credit cards under your business name and address (not your personal).
Paying bills on time
We all know that with a personal credit card, and some other personal loans, you must pay a late fee, even if the payment is one day late. The good thing is that late payments on personal debts are not reported to the credit reporting agencies until the account is over 30 days late.
However, business credit does not work the same way. Making a payment that is even one day late can cause your score to drop.
Most vendors utilize the Dun & Bradstreet’s PAYDEX score to evaluate a company’s creditworthiness. This score, ranging from 0 to 100, is based solely on your payment history. The higher the number, the better.
If a vendor offers you terms of net 15, meaning that you have 15 days to pay from the date of the invoice, and you pay on the 16th day, they can report you for paying one day beyond terms.
If you pay all of your bills exactly on the date they are due, you will receive a PADEX score of 80. The achieve a higher score, simply pay your business bills before their due date.
Even though Business Finance Corporation (BFC) does not report transactions to any of the reporting agencies, we can assist you with the maintenance of your good credit. By prequalifying as a customer of BFC, we are ready to provide needed cash quickly at times when your reserves are low, and your payables are due, allowing you to pay your bills on time.
Call Dave Cabral or Albert Delgado at 702-947-3800 for details.
Your partner in success,