Millions of small businesses exist nationwide and one thing that many may need in the course of their daily operations is a little extra cash flow just to make things run a little more smoothly. However, in many cases, owners of these companies may need to turn to lenders large and small as a means of obtaining credit to make that happen.
The problem for many of these owners, and by extension their companies, may face is that their personal credit scores are not in good enough shape to obtain the credit they may want or need for their small businesses. The unfortunate reality for many of these independent enterprises is that they do not have the financial wherewithal to obtain credit strictly on their own merits, and therefore the owner's credit score is often taken into account when lenders consider whether to extend them small business loans. For this reason, owners who want their companies to prosper may want to do a little bit of basic credit repair as a means of ensuring the businesses will be able to obtain the best possible loan terms available. As an added bonus, the steps they take to fix credit and help their companies will also, in turn, have a similar effect on their ability to obtain personal credit.
What credit repair steps can small business owners take?
There are generally two factors that go into making up a good credit score that most owners can achieve with relative ease, and both relate, in some way, to how they make payments into their accounts every month.
The more important of these two, from the point of view of simply how good their credit standings are, is payment history. The ability of a borrower to make all their payments on time and in full every month, and on every account, comprises a full 35 percent of borrowers' credit scores, meaning that even one slip-up in this regard can undo months or even years of hard work, no matter if that deadline was missed by a day or a month. For this reason, borrowers who have perhaps missed a payment or two in the past will likely simply need to make several months or more worth of on-time contributions into all their accounts once again. While this will not strike the evidence of the payment misstep from their borrowing records, it will smooth over the issue by showing lenders that it was a one-time, isolated incident.
The second factor, nearly as important as payment history, involves the amount of debt being carried by a borrower at any given time, when viewed as a percentage of their credit scores. This is known as their "credit utilization ratio" and it works fairly simply, while comprising another 30 percent of a rating. In essence, the best way to maximize this portion of one's credit score is to keep the amount being borrowed to just 30 percent of total allowable limits across all accounts, or less. This means, for example, that borrowers who have four credit cards with limits totaling $10,000 altogether and $5,000 in combined balances are using 50 percent of their credit limits, and therefore have lower scores than they would if they owed just $3,000 on those accounts.
The reason this is tied to payment habits is that borrowers can address this problem by contributing more to their balances every month until their obligations drop to below that 30 percent mark. This may mean reducing the amount of spending made on these accounts every month, but comes with the added incentive that new federal laws mandate any contributions made to such accounts above the minimum listed on the bills must be applied directly to the loan principal, meaning that interest charges and the balance itself both shrink more quickly.
Both of these steps can put small business owners in a far better position to apply for loans with more confidence, as higher scores generally mean better terms on any lines of credit for which they are approved.
Another step owners should be taking
Meanwhile, even as they make these basic credit repair moves, owners should also take the time to order copies of their personal credit reports. These documents generally show all lines of credit listed in their names, and taking the time to examine them may help owners to discover whether there are any unfair markings that may be having a negative impact on their standings. If any such problematic entries are discovered, it might be wise for these people to contact a credit repair law firm. This may help them to put the potential issues to rights, and return their standings to where they deserve to be, in a more efficient manner than they might have been able to achieve on their own.