But wait… you just want an answer, right?
We understand. And if there was a simple answer, we would give it to you. The only statement that can be made for certain is; maybe. The difficulty is, a ‘bad credit score’ is a broad term and shouldn’t be thought of as a true or false statement, it’s the cause of the bad credit that is important.
Business lenders are risk adverse. They want to make a profit whilst minimising their risk, and in order to help them reduce that risk they assess a number of factors when assessing an application, one of which is your business’s credit score. A credit score is a numerical rating, usually between 1 – 100, and provides lenders with a snapshot of the financial history of the business in question, however, it isn’t a definitive factor (in most cases anyway). The reasons that are affecting the credit score are what is key to understand.
We break down some common reasons for poor business credit, and explain how they may impact your chances of obtaining business finance.
Missed payments
Missing payments is a breach of contract and should be avoided at all costs, regardless of type of agreement. It signifies financial distress and a lack of responsibility, and is highly likely to impact your business’s credit score. However, the way in which missing payments are dealt with will also be considered.
If one payment is missed, but settled as soon as possible, it’s likely to have less of an impact than missing multiple payments with long periods before settlement. Both are likely to impact your business’s credit score, but dealing with the issue straight away is far better than ignoring it. Having one or two missed payments on your business credit file is unlikely to deter all lenders, depending on the actions taken and the severity of the missed payments. It will however mean your business is classed as a higher risk, so expect to pay higher interest rates.
If your business has a history of missed payments, or outstanding payments not yet settled, the business will be considered to pose a much higher risk, potentially resulting in lenders unwilling to offer finance. Having a poor business credit score as a result of a missed payments doesn’t mean you can’t apply for finance, but it’s useful to know what to expect.
Click below to speak to our specialist business finance partner broker to find out more.
Multiple credit searches
Completing a number of business finance applications may seem harmless, however this is a common misconception. Each time a business finance application is submitted a credit check will be conducted which leaves a footprint on the business’s credit profile.
Too many credit searches in short period of will typically cause lenders to err on the side of caution. It is often considered to be a sign of financial instability and in the eyes of the lenders will cause the business to be perceived as a higher risk.
The resulting consequences are dependent on the number of searches conducted and the time frame they have been conducted in. A few searches are unlikely to prevent you from obtaining business finance from all lenders, but a significant number in a short period of time may prevent lenders altogether.
It is essential to fully consider any finance application, including any subsequent impacts, before proceeding.
Incorrect information
Business credit profiles are extremely important when it comes to obtaining finance. They’re used as a way to measure the level of risk a business poses, and will have an impact on the type of finance you are offered. It is therefore essential to ensure all the information on your credit profile is correct and up to date, otherwise you may be penalised for factors that aren’t true.
The level of impact incorrect information causes can be severe, depending on what is wrong, but in some circumstances, it may prevent a business from obtaining finance altogether. Fortunately, credit referencing agencies (CRAs) understand this can happen, and provide ways for business to update and correct the information on their profiles.
Unfortunately, updating business credit information is not usually a quick process. Most CRAs allow the source of the error 30 days to investigate the issue, but in more complex cases may take longer. For many business owners identifying credit profile issues only occurs when their profiles are being checked by external partiers which can lead to business owners being in limbo until the issue is rectified. It is therefore essential to keep track of your business credit report, and dispute or update any incorrect information as soon as possible.
To find out more about business credit, or check your business credit score, follow the link below to our partner xxx.
County Court Judgements (CCJs)
A County Court Judgment (CCJ) is a county court order which can be made against a company to enforce debt repayment. Generally, a creditor will not apply for a CCJ unless there have been repeated attempts to recover the debt to no avail. Having a CCJ issued against your business can be detrimental, so it is essential to deal with the matter as soon as possible.
In most cases, if left unpaid for 30 days a CCJ will be recorded against your business credit profile and remain there for 6 years. This will have a severe consequences on your business’s credit score, and will undoubtably make obtaining future business finance more difficult and expensive.
It’s important to avoid CCJs at all cost by keeping on top of your business credit, but in the event a CCJ is recorded against your business, there are still lenders who will consider finance applications. Some specialist lenders will still consider business finance applications where there is a CCJ on the business credit profile, but the applicant will be considered as a much higher risk. This is likely to result in less favourable agreements being offered, such as higher rates or shorter terms, if at all.
To speak to our specialist business finance partner, follow the link below.
Liquidation
Put simply, a business liquidation is when a business is brought to its end. All assets are liquidated (sold) and the proceeds from the sale of assets are used to repay creditors. This is the worse-case scenario for a business. If a business has determined the company will be entering liquidation, it will no longer be legal to take out further finance. This is classed as fraudulent trading.
The bottom line
Your business credit score is a vital part of being able to obtain business finance, and should be looked after to make obtaining future credit possible. Having a less than perfect credit score doesn’t mean you can’t apply for finance, but it’s useful to know what to expect. To speak to our specialist business finance partner, follow the link below.
To find out how to improve your business credit score, read out article on How can I improve my business credit score?
