Now that 2017 is already weeks old, and Father Time has gone back to bed for his long winter nap, most small business owners have already begun working on their books for the New Year ahead. Being profitable and cutting costs are probably on the list of resolutions for small business owners, along with offering better services to customers. But what needs to be on the top of every small business owner’s to-do list is fixing any bad credit issues that may be present.
Going into a brand New Year with serious credit concerns only sets a business up for stress and failure. According to Gallup, nearly one in three US businesses feel overwhelmed by debt and bad credit. Half of these business owners say that it’s very difficult paying off debts. Now is the right time to get back on track and correct bad credit, using these helpful steps.
STEP 1. RUN A COMPLETE CREDIT REPORT FROM ALL THREE CREDIT BUREAUS FOR THE BUSINESS.
Take the time to run or request a full credit report that details all the financial history of the company from January to December of the previous year. This can be obtained by connecting with the three major credit bureaus, for free. Use your federal tax identification number to request this.
STEP 2. OBTAIN COMPLETE CREDIT REPORTS FOR ALL THE BUSINESS OWNERS IF THERE ARE CREDIT CARDS OR OTHER FINANCIAL ACCOUNTS TIED TO THE BUSINESS.
Very often, small business owners overlap some of their personal expenses with those of the business. For example, they may have a credit card that they established under a personal social security number and then used it to fund part of their business startup. Make sure you have all your statements available to reconcile as part of this step in repairing your small business credit.
STEP 3. REVIEW YOUR CREDIT REPORTS WITH YOUR ACCOUNTANT, NOTING ANY DISCREPANCIES THAT MAY EXIST.
Take the time to go through your credit histories on each report, one by one. You may want to sit down with your bookkeeper first, or just head for your accountant’s office to do a thorough check of all items. You will want to look for unfamiliar vendors you have not done business with, any credit inquiries you did not make, any past due bills that were not generated by your company.
STEP 4. CONTACT THE CREDIT AGENCIES AND REQUEST IMMEDIATE REMOVAL OF INCORRECT INFORMATION.
Once you have narrowed down all credit errors, draft a request in writing to each of the credit bureaus to remove these items from your credit reports immediately. Ask them to report the removal and update your status to the credit agencies within 30 days. They have a small amount of time to investigate the claim, but will generally drop items off the history that they have no evidence of.
STEP 5. GET ALL YOUR BUSINESS DEBTS AND SMALL BUSINESS LOANS PAID UP TO DATE.
Take the time to review all your business financials, including your debts and small business loan balances. The Small Business Administration advises all to make an effort to get debts all paid up to date and then some. Send an extra month’s payment to all lenders if you are able to. One way to do this is to take out a merchant cash advance or a new small business loan and use these funds to bring all other accounts current.
STEP 6. TAKE OUT A SMALL LINE OF CREDIT WITH A LOW INTEREST RATE.
Once you have confirmed that the negative and false credit items have been removed from your history, your FICO score should start increasing. Give it a few weeks. Then apply for a new small business loan or a small line of credit. This will look good to the credit agencies because your debt to available credit ratio will improve. Use this line of credit as a backup to other forms of small business loans to improve your bad credit.
STEP 7. KEEP YOUR SMALL BUSINESS LOANS AND OTHER PAYMENTS CURRENT.
For the remainder of 2017, focus on paying all your debts and bills early. Make a small extra 10% payment on each invoice or bill. Work with your vendors to give you a discount for paying early, as many will be happy to do so to avoid collections work. Your credit card bills, small business loans, and utilities weigh heavily on making your bad credit score a thing of the past.
STEP 8. IMPROVE YOUR RECEIVABLES IN 2017.
Take the time to update your policy on receivables for the New Year. No longer offer credit to your customers. Instead, encourage them to pay for their business with you using their own credit cards. Your small business is not a bank so stop losing money by having a bad policy that serves no one but others. For current customers, give them 30 days to bring all accounts current or start charging a 5% late fee for every month they are late.
STEP 9. KEEP ALL YOUR PUBLIC RECORDS CLEAN AND ERROR FREE.
Judgements and lawsuits can wreak havoc on any small business. Therefore, take care of your responsibilities to reduce the chance of this happening. Have enough liability and property insurance available to protect your company from claims. Check public records to make sure you have no outstanding tax bills or judgements against your business. If you do, get them cleared off as soon as possible.
These are just some of the ways you can repair bad credit for your small business. Remember that it’s up to you to maintain clean financial records and stay on top of your business ratings at all times. Small business loans can help support this goal because they can be a quick cash infusion you need to pay down debts and get bills current.