As a small business, your company’s ability to access financing from lending sources is a critical component of your firm’s success. There may be instances where your company will have to seek additional funding from an outside lender (bank, credit union, angel investor, etc). Such financing is typically used to serve as needed working capital associated with the purchase of supplies/equipment, payroll, or covering contract costs. In this regard, not having access to capital can leave your company hamstrung, preventing you from expanding or pursuing specific contract opportunities that could generate substantial revenue.
When a business owner begins to seek financing from a lender (whether it be through a conventional or a SBA loan), or begins to seek bonding from a surety producer, an important aspect that will be evaluated by the lender is the business owner’s credit score as the personal guarantor. Lenders/underwriters look at the owner’s credit score as an indication of that person’s financial responsibility, and the credit report will show whether or not you’ve been paying your liabilities (bills, debt, etc.) in a timely manner. If the owner’s credit score is above 680, lenders will generally have confidence that the borrower will repay the loan. On the other hand, some lenders will shy away from borrowers with a credit score under 680 because of the amount of risk involved.
Since your credit score is such a vital element of your company’s potential future growth, I wanted to share a few tips with you to help you monitor and/or maintaining your credit score:
If you currently do not know what your credit score is, I recommend visiting the “Credit Karma” website which allows you to view your credit score/credit report for free within 10 minutes of creating an account and answering a few personal questions. Here is the link: https://www.creditkarma.com
I highly recommend that you consider subscribing to a credit monitoring service to receive automatic updates regarding any changes to your credit score in real-time(which also helps protect against identity theft). One service I recommend for credit monitoring is Equifax, which costs a mere $15/month. Here is the link: http://www.equifax.com
If at all possible, try to avoid having any of your outstanding debts go into collection. Do your best to budget your personal (and business) finances so that you can make your bill payments on time.
For any accounts that charge interest, try to make more than just the minimum required payment in order to pay down the debt quicker. By making just the minimum payment you barely touch the principal balance in most cases, which prevents you from truly becoming debt free.
While it may not be feasible to pay off all of your debt at once, try to target the bills with the highest interest rate to pay them off first.
If by examining your credit report you notice any errors or mistakes regarding your debt, make sure to dispute those charges immediately (you may be able to remove certain accounts that are mistakenly dragging down your score).
In order to improve your credit score, consider taking out a small secured credit card at a financial institution and make your payments on time. This will help you build your personal credit and credit score.
I believe that by adhering to these tips regarding monitoring and maintaining your personal credit score, you will put your company in a good position to successfully obtain bonding and/or financing as needed to provide working capital for future projects/contracts.
If needed, Sams Contracting Consulting and Training can assist your company by helping you monitor/maintain/improve your credit score; write/develop a business plan to apply for financing, and make recommendations regarding financing options (SBA Loans, etc.), bonding agents and potential lending sources (including banks/credit unions/factoring companies).