Credit scores are a topic that are constantly in the media and the latest reports suggest that new standards will see individual scores increase by as much as 30 points this month. However, with ongoing migration into virtual spaces, there is a need to address the effect credit scores have on virtual businesses. A credit score helps lenders and creditors to assess the creditworthiness of an individual, business owner or company. They also play a role in the process of getting loans, insurance or even a credit card. Equifax, D&B Paydex, FICO and Experian are the four main credit report agencies who track your credit.
Effects of Poor Credit Scores on your Business
To be deemed creditworthy, virtual companies are required to register with the major credit report companies and maintain high scores. Whether it’s a personal or business credit report, a bad score will adversely your business. The following are some of the hardest blows your virtual enterprise will receive:
Stressful Loans
The most obvious effect will be the problematic process of acquiring business loans. Although virtual companies are popular for low start-up costs, a good line of credit facilitates the process of outsourcing various services and growing your business. A bad business credit report tells banks that your business is not creditworthy. No matter how great your business plan looks, banks will reject your loan application.
Once banks prove problematic, you can turn to alternative lenders. However, they charge inflated interest rates, which will hurt your company’s finances. Additionally, some alternative lenders can be very harsh if you default payment.
Difficulty in Future Expansion
Most virtual companies require very little start-up capital. However, as the business grows, expansion programs become quite costly. To be more effective, such necessities as sales and marketing, advertising, shipping, content writing, SEO expertise and web development need to be outsourced. These come with heavy salaries and bills.
Automattic, a web development company best known for WordPress, currently operates in 174 countries and 36 US states. Since its establishment in 2005, it has profited greatly from investors. It was able to raise $1.1 million in 2007, $29.5 million in 2008, and $160 million in 2014. The company’s ability to raise funds and keep growing is centered around its successful projects including Akismet, Gravatar, and WooComerce. Certainly, maintaining good credit reports gives investors the confidence to keep injecting funds into the company.
A virtual enterprise with poor credit scores may never find investors or lenders to help finance the expansion. Personal (if applicable) and business credit reports will be scrutinized before deciding on interest rates or loan qualification altogether. Although some lenders are not concerned with personal credit reports, Crediful (crediful.com) recommends keeping both scores at high levels especially if you are a business owner.
Poor Supplier Relations
E-commerce companies are quite popular today. A successful e-commerce venture is highly reliant on discounts and a stable line of credit from its suppliers. Suppliers will be reluctant to offer products on credit if the business or proprietor’s credit score is poor. Some vendors may demand a higher deposit or even choose not to distribute to your firm altogether. This strains your virtual business in the long run.
One-Stop Solution
Most entrepreneurs in the virtual space are oblivious to the effects of personal and business credit reports to their companies. However, you need not worry if your credit scores are dissuading lenders. Take advantage of financial expertise to polish your credit reputation in order to achieve financial stability for you and your business.
Lenders, creditors, suppliers, and investors turn to credit reporting companies to help them judge the entrepreneur or the business’ creditworthiness. Virtual companies are subject to this financial scrutiny and suffer the effects of bad credit reports despite the absence of physical business premises. It is therefore essential to maintain good personal and business credit scores. They allow for easy access to business loans, low-interest rates and favorable terms and conditions by suppliers.
