A country's economy is typically a roller coaster. With our current economy, it is becoming fairly common for many small businesses to rely on different sources of credit. As the economy rises and falls, most business owners need to access credit to help ride out the slow times in order to pay employees, maintain inventories, and keep the doors open. Unfortunately, if those bad times become longer, an owner can fall behind in their payments. As a result, their business credit rating, and sometimes their own credit rating, can suffer.
Where to Begin?
As uncomfortable as it may be, the best place to begin is by contacting the creditor directly. Oftentimes, they will be in a position to best counsel you on your options. Being upfront sooner than later will give you more choices in the long run, rather than waiting until it is too late for the lender to assist you. Give yourself as many options as possible by reaching out early.
Do Your homework
Before you reach out to your creditors, first do your homework and objectively assess where your company’s position is in terms of its ability to get back on track. When you approach a lender with information, you can then speak with them about timelines and payments that are acceptable to both of you. Arming yourself with the numbers will give you more confidence going into those negotiations.
Use Credit Reports
Depending on the type of business you operate and how long you’ve been open, your business likely has a business credit report with Dun & Bradstreet. D&B is the industry leader in business credit information. Banks and other lenders will often consult D&B before extending credit directly to a business. They assign each business a D-U-N-S number. You may want to consider reaching out to them to get your business’s information, but be aware of additional unnecessary services they may try to sell you.
D&B maintains a history of your business credit records and produces what is called a PAYDEX score. This score ranges from 1 to 100, and just like your personal FICO credit score it helps lenders get a sense with one number the general overall health of your business credit situation. A score of 1 is the worst, and 100 is the best. Typically, a score of 80 is seen as excellent.
Many small business owners often use their personal credit to help finance their business operations. If your credit score has taken a hit there there a number of resources available to assist you in getting back on track. Services like Creditrepair.com or any of the major credit reporting agencies can help you learn more about your personal credit situation. In fact, according to the Federal Trade Commission, or FTC, you are entitled to one free credit report every 12 months. You can order online from annualcreditreport.com, which is the only authorized website for free credit reports. To verify your identity, you must be prepared to provide your name, address, social security number, and date of birth.
Make a Plan
Armed with this information, you can make a plan to get you back on track and avoid a repeat situation. If your business is seasonal, find what you can adjust for hiring and maintaining appropriate inventory all year. Are there expenses you can cut or negotiate like rent, insurance, or other contracts to take into account the ups and downs of your business? Are there items that make sense liquidating to pay off creditors? It may hurt in the short run, but in the long run interest, fees, and other penalties can add up. Paying off debts with large payments will drastically reduce those costs over the long haul.
Remember to keep perspective. Being a business owner is tough! You wear many hats every day and work hard. Remember what motivated you to start your business in the first place. Rely on that motivation and passion to get your through the rough patches. Every business has its challenges. Doing your homework and being proactive in communicating with your creditors will help you get back on track.