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Bad records at the credit bureaus

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HOW BAD CREDIT CAN AFFECT YOUR BUSINESS

Everybody is aware that bad credit records will cause a lot of problems with personal finances and can cause a higher interest rates on car loans and mortgages. Although business credits and personal credits are different, personal credits still affect businesses. If you are an entrepreneur with little track of proven business expertise, lenders will often check your personal credits history when you apply for mortgage especially if you do not already have any business credit history. Poor business credit scores can affect your business adversely leading to rejection of your loan applications, request for higher deposits, higher interest rates on mortgages and you being unable to acquire inventory. This is why it is in your best interest to try every possible things to improve your personal credit score before you set out to become an entrepreneur.

In the UK, poor credit scores below certain ranges automatically disqualifies you from getting loans for certain lenders and banks. Over the years, banks have cut down on their business loans thus increasing the eligibility requirements which in turn makes the process a very tough one for people with bad credit rating, thus as a result, you have to apply to other lenders who have less strict criteria.

Higher interest rates

However, one disadvantage of alternative lenders lie in the fact that they charge high interest rates compared to bank and lenders who have backings from government agencies. Bear in mind that business loans are like investments so you have to weigh the risks and benefits, so does the lender who is afraid of you defaulting in payment. This is the exact reason why they charge high interest rates, which covers the amount of risk you expose them to as well as their service charge. If a lender feels you pose to be a higher risk investment, your interest rate will be raised.

Inventory, utility and supply problems

Asides lenders, there are other service providers who check your credit record while accessing how to charge you. They often ask clients with bad credit ratings to pay additional deposit. For example utilities and some real estate companies that run the risk of having customers pull out of leases earlier than they are supposed to or failing to make repayment for rent and maintenance when they are supposed to. Distributors may be afraid of doing business with you especially the ones that deal on raw materials and inventory on credit or in installments. Even when they consider you, they end up charging you more than what they charge other entrepreneurs who have better credit or decline your application out rightly.

You may find it difficult to start your business.

As a first time entrepreneur, you might not be able to raise the capital needed to start a business and this is one of the major challenges facing people who want to start businesses. Lack of capital can be detrimental to your visions of having your own business as you would require capital for insurance, payroll, licensing and permits, marketing and other. Without enough financing, it can be very difficult to start up your business, but you ca always explore other option like using your personal finances, requesting for assistance from family and friends or asking for crowdfunding.

You may not be eligible for discounts

Another disadvantage of having a bad credit record is your inability to take advantage of the discounts vendors offer to customers known as “prompt-pay discounts.” These discounts are usually offered to customers who vendors find creditworthy. The discount can be up to 2% of the invoice amount if they pay early (within 15 days). Depending on your monthly income, the discount can be worth a lot of money.

Bad records at the credit bureaus

Business credit scores are usually calculated by Equifax, Experian, and Call credit. Scores higher than 75 are usually seen as good ratings. Business credit profiles are sent to credit bureaus and these information are made available to the public. These information are sent out voluntarily, thus business owners have to ensure they maintain positive relationships with lenders and creditors as these information are sent to the credit bureaus. Most times, these information are the negative ones such as multiple inquiries, delayed payment etc. So you need to be extremely careful to ensure that only good records are sent to them.[/vc_column_text][/vc_column][/vc_row][vc_row el_class=”seo-link-sec”][vc_column][vc_empty_space height=”50px”][vc_column_text][slick-slider category=”28″ design=”design-5″ speed=”2000″][/vc_column_text][/vc_column][/vc_row][vc_row el_class=”call-out-sec stretch-sec” css=”.vc_custom_1568018042545{background: rgba(0,0,0,0.88) url(https://imbonline.co.uk/wp-content/uploads/2018/07/counter-wrapper.jpg?id=1382) !important;background-position: center !important;background-repeat: no-repeat !important;background-size: cover !important;*background-color: rgb(0,0,0) !important;}”][vc_column][vc_column_text]

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Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of our Independent Mortgage Brokers to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisers working for or with Independent Mortgage Brokers are fully qualified to provide mortgage advice and authorised and regulated by the Financial Conduct Authority. All our independent Mortgage Brokers will offer advice specific to you and your needs and circumstances. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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