Owners of any start-ups often end up under a second mortgage or some personal loans on high-interest to get their business bankrolled. Even though initially things may seem to help you out, too much debt will land you in big trouble in the long run. This is a challenge a lot of business owners face, especially in their starting point. As a result, a lot of business owners end up paying off debt from the revenue they make instead of getting it into their bank account. The worst case scenario is when their debts become delinquent, and their brand gets a bad reputation. This is how a lot of startups get closed down.
The situation is even worse for sole proprietors or smaller startups as their personal credit works as the company’s capital. Too much credit can damage the business of any brand. Your credit will suffer a major negative setback, and you will have problems while trying to get funding for your new business. Your credit score is a major criterion for at least about 71% of banks when you are trying to get approval for a loan.
Why is Your Business Credit Score so important?
If you are an entrepreneur, then you get a chance to maintain credit both on a personal level and businesswise. Your personal credit score and your business credit score are two separate factors, though. If you just started developing on your business plans, then at first, you need to understand what a business credit score is and how you can manage it. It is a known fact that banks generally consider the business credit or your commercial risk score as a standard. They also hold immense importance to manufacturers, wholesalers and service firms. Business relationships are built on credit scores.
Don’t confuse your business credit reports and credit scores with your personal credit history because they are completely different things. Even though a business credit history will show information which is similar to your personal credit report, they are more specific to your debt repayment and public records. They will depict any history of bankruptcy or any entitlement to tax liens you have had in the past. Business credit reports provide information regarding the business owners and their offices also.
How much do You Know about the Business Credit Score of Your Firm?
Have you ever wondered about how your company appears to the banks and the rest of the world? Sure, you may be very emotional about the company you set up with your sweat and blood, but to the rest of the outsiders, your brand image and credit report is the sole measurement. So how do you find out about how they see your business? There are a few factors that you need to consider to control the way your brand appears to others like, the payment history of your company, the amount of credit that is still at your disposal, how old your credit profile is, and how frequently inquiries are made on that profile.
The main purpose of business credit reports is to inform your new investors about how long it might take you to return the payment. It also depicts the company’s condition and how likely it is to go delinquent under several loans. You would be smart to regularly monitor your business credit score like you would for your credit score. You can get details of your credit score from websites like nationaldebtreliefprograms.com and others.
How to Get out of a Bad Debt Situation?
Debt is a word that can strike fear into the hearts of any entrepreneurs. You need to plan out a proper solution instead of just losing your money and sleep over it. We understand that it can feel paralyzing at times, but you can make a few changes in your financial planning and plan towards your goals. Just like you would do a good amount of research before you make any big purchase, our advice will be to do the same before making any decisions regarding your finances in the future.
However, these are the best 3 options you have in case you do get into debt and is looking for a way out.
- Declare Bankruptcy
Declaring bankruptcy has a way to eliminate the total debt, but you need to have very little to no amount of income for that, at least in the case of Chapter 7 bankruptcy. In the case of chapter 13 bankruptcy, your debt needs to be reorganized. The debtor that is your company needs to pay back a part of the debt under a payment plan, and also have some income or asset. With this method, you can get out of the debt by paying a much smaller part of the entire payment. The obvious benefit of declaring bankruptcy is that you get free from your debts within 3-6 months, easily.
- Opt For Debt Consolidation
This is a very efficient and most advisable way of getting rid of your debts. Debt consolidation helps in combining all your debts into one single loan and helps you pay it off at a relatively lower interest rate. The major benefit of debt consolidation is that your credit score remains unscathed.
Sign up for Debt Settlement
Debt settlement is similar to Deb consolidation, except that it differs in terms of paying your debt. With debt settlement, you don’t have to pay the entire amount of debt. A debt settlement company negotiates on your behalf, and your creditor is convinced to reduce the total amount of payment you owe them. Settlements have been known to have reduced the entire debt amount to even 60-80 percent down, depending on the type of debt your company is in and how much amount you owed. Debt settlements are especially useful for student loans, car loans, medical debts, and even small business loan debts. You can find debt settlements for 2nd mortgages and credit for home equity loans too.
Marina Thomas is a marketing and communication expert. She also serves as a content developer with many years of experience. She helps clients in long-term wealth plans. She has previously covered an extensive range of topics in her posts, including money saving, Budgeting, business debt consolidation, business, and start-ups.