How to Maintain a Solid Credit Score for Your Small Business During COVID-19 and After
There are various effects that the coronavirus pandemic has had on the small business economy. First, there are the government restrictions and shutdowns that haven’t only taken a big chunk of their revenues, but has also pushed most businesses past the point of no return.
Other businesses that haven’t been forced to close down are still struggling with massive disruptions in their supply chain, which affects both production and distribution.
As businesses keep struggling to stay afloat in the wake of COVID-19, they also need to keep an eye for their credit score. While maintaining good credit may seem like a small consideration during an economic emergency, it’s essential for businesses that need to ask vendors for credit, borrow money, or take any action that will cushion the business down the line.
Here’s how you can maintain your business’ good credit score despite COVID-19.
Look for ways to establish business credit.
In this economic crisis, credit is tight as the criteria for borrowing have changed. It’s also likely that lenders will be reluctant to reenter the market in the foreseeable future as long as the health of the business economy is at stake.
That means that businesses will have to look at other methods they can use to access borrowed capital. A good example is trade credit. Payment terms from your suppliers may not be a business loan, but it can be an excellent way to maintain your good credit score. If you pay your invoices on time, your suppliers will report your good credit history to the appropriate credit bureaus. They will demonstrate that you can successfully build your business on credit.
Make payments on time and use only the credit you need.
You may have the temptation to borrow as much as you can in the current situation. However, please note that there are costs associated with borrowing. In these unprecedented times, you should ensure that your business is in a position to service the debt in the long term and can cover the short-term needs created by the coronavirus pandemic.
Make sure you’re making your payments on time, and if you think you may experience delays in payment, it’s best to discuss that with your creditor in advance. Many may be willing to offer reasonable terms of payment.
Maintain a strong personal credit score as well.
As a small business owner, expect your personal score to be used to determine your business’ creditworthiness. It’s one of the ways lenders are using to evaluate potential business borrowers looking for PPP (Paycheck Protection Program) money.
This was one of the major topics discussed during the post-COVID-19 creditworthiness discussions and will also be used to make future loan decisions. With a strong personal score, ensure that your business credit score is good as well. It will open doors for small business financing opportunities in the future that will be unavailable for businesses with weak profiles.
As they try to slowly open up the economy using trade credit, making payments on time and maintaining a strong personal credit score will help maintain a good credit score for your small business.
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