As a business owner, one of your earliest goals should be to improve your bottom line, that is, the amount of profit you are bringing in at the end of each business year. The more your business is able to earn, the more it will be able to grow and therefore earn more. At the corporate level, this means planning out your company’s investments, spending, and expenses to maximize profit.
However, when you’re a small business owner, especially a sole proprietor or member of a small partnership, you will find that your personal finances can be directly tied to your business finances. This means that any poor financial habits of yours could be negatively impacting your business as well. If you want to boost your bottom line, you are going to need to first get your personal finances in order.
One area in particular can have a big impact on your business’s ability to make a profit and grow: bad credit. Typically, any score under 580 is considered poor credit. This can be a huge strain on your finances and will prevent you from achieving your highest potential profit in several ways.
Higher Interest Rates
In the startup phases of your business, getting a loan is going to help you fund your business properly, and allow you to get off the ground without needing to spend large amounts of cash up front. However, if you have bad credit, your options for getting a business loan may be limited. This means that you may need to spend more time saving up money on your own in order to fund the business yourself: which could also mean a longer amount of time to earn back your initial investment.
If you do decide to take out a loan with bad credit, you could find yourself impacted by higher interest rates than you would be able to get with higher credit. As your monthly payment costs will go up because of these high-interest rates, you will find them negatively impacting your bottom line in the long run. In addition to this, if you do want to refinance your loan for lower interest rates down the line, you may have trouble doing so, as many refinancing options have high credit requirements.
Don’t worry, though; there is hope if you have poor credit and are looking for financing options for your business. United Capital Source offers business loans for people with bad credit at better interest rates than many other funding groups, allowing you to have lower monthly payments than if you took out other bad credit business loans. You’ll be able to enjoy higher profit margins without needing to spend time building up your credit score, and in some cases where you pay off debt, you’ll find your credit score growing as well.
Lack of Access to Bank Accounts
Another important part of a business’ financial strategy should be saving money. This allows for the creation of emergency funds, planning for future expenses, and investing in higher-cost assets for your company. However, because all bank accounts require you to provide your social security information before signing up, many are likely to subject you to a credit score check before letting you become a member. If your credit isn’t up to par with the bank’s expectations, you could be denied a bank account until your score improves.
After being frequently denied access to banking, you might find yourself struggling to find a place to store your finances. On top of that, your access to a business checking account will be limited as well, making it harder to budget your spending. Thankfully, not all banks require background checks to join; in fact, some digital banks can provide accounts without even checking your credit score. Removing this step essentially gives you a second chance at financial freedom. If you’re looking for a way to start saving money while building up your credit score, consider starting over with an online bank that offers second chance banking services.
Being Denied a Partnership
If you’ve ever applied to work a full-time or even part-time position, you know that background checks can play a major role in the hiring process. But did you also know that your credit score could also be taken into account when you apply for a job? A recent study showed that in the 75% of cases where employers use background checks, 29% included a credit score review in the background check.
As a business owner, you are likely to look into partnerships with other local small businesses, as a partnership can be a great way to build business relationships and therefore improve your company’s overall revenue and profit. In order to create these partnerships, you may find your business, and your own personal finances, being looked into by potential partners. Just as businesses are using a credit score to look into who to hire, they also could be using it to look into who to partner with. Therefore, you very well could be looked over for a partnership based solely on your credit score.
Financial Stress Can Reduce Productivity
When you’re running your own business, your primary focus should be on making your company as successful and productive as possible. This means that while working and going about your day-to-day, your focus should be dedicated 110% to your work.
If you have financial difficulties in your personal life, however, you may find that they are distracting you from your work. Instead of being able to sit down and work on a project or market to potential clients, your mind will constantly be focused on the financial difficulties impacting your life. This will seriously impact your potential to grow and improve your bottom line.
In addition to this, poor credit and overwhelming debt can make you far less risk-tolerant, meaning you are more likely to take the easier route when it comes to business decisions, at the cost of your company’s success. Taking risks is one of the best ways to see higher rewards and returns for your business, but if your own personal finance concerns are in the way, you might not be making the right business decisions.
While bad credit will definitely be impacting your business, the important thing to remember is that you are not stuck with poor credit forever. All businesses have their own growing pains, and this is simply one of the ones you are going to have to deal with as a new startup. However, you can improve both your credit and bottom line by staying on top of your loan payments, growing your business as much as possible, and putting your financial anxieties out of the picture when making business decisions.