Towan, Keep It 100:
How Important Is Credit in Business?

E File | Posted on November 07, 2017

This week we take on a topic that nobody ever really wants to talk about: credit. To say that credit is an issue for most Americans these days is an understatement, but since this blog is about professional development, I’m going to talk today about how credit (good, bad, or none at all) can affect your ability to do business.

“Towan, how important is credit in business?

In many cases credit is the lifeline of your business. It’s not uncommon for entrepreneurs to have compromised credit as they build their business, but you’ll have to clean it up to secure the financing to grow your business. Repairing your credit takes time, patience, and effort, but it’s a necessary part of life. 

Here are some tips to help you repair your credit:

  • Contact creditors and negotiate payment terms and plans to decrease your debt.
  • Work with a mortgage lender to assess your ability to purchase a home; the mortgage lender can rescore your credit as you pay things off.
  • Assess your assets and liabilities. Are you making high monthly car payments that are taking away from your ability to pay off other debt? Your score could improve a little faster if you reduce the amount you spend on certain liabilities or on non-money-generating items (such as a fancy car) and double up on your debt payments. If you’re in need of a loan, identifying what assets you have can help you negotiate a better rate if you’re credit isn’t perfect.
  • Pay your bills on time! This seems like a no-brainer, but life happens, and sometimes business owners find themselves getting sued because of an oversight or an intentional non-payment. Lawsuits do not bode well for business.

With startup culture being the latest craze in business, a lot of entrepreneurs are not considering their credit issues when going into business. Unless you want to rely on GoFundMe or Kickstarter for all your future endeavors, you will need solid, if not great, credit to secure a business loan or line of credit. Remember that your personal score affects your business rating, so it’s best to try to rein in any personal debt before seeking financing.

Once you are ready, consider the following: 

  • Local banks and credit unions. Often local banks offer more personal financial counseling, better rates for small business owners, and tools and resources to help entrepreneurs keep their finances intact as they scale.
  • The best type of loan for your business. Are you better off with a business line of credit or a business loan? Should you consider crowdfunding or traditional lending? Are you eligible for any grants or micro-loans from local non-profits or business associations? A banking professional can help you determine this, based on what your financing will be used for.
  • Do you have a system in place to stay out of debt? If it happened once, it can happen again, and the second time isn’t always as easy to repair. Work with an accountant or use financial planning tools to determine your income-to-expenses ratio, create a realistic plan you can stick to in order to build up savings for emergencies, and put as many bills on autopay as possible to avoid missed payments and potential collections.

Repairing your credit and taking time out of your business to invest in asset-building may not seem like top priorities for the young entrepreneur, but trust me, it’s better to get ahead of these things before you spiral out of control.