If your company has fallen on hard times in recent years, you’re not alone. The recession of the late 2000s affected everyone, from small businesses to large corporations. Among other issues, your good credit standing with credit bureaus such as Dun & Bradstreet, Experian, and Equifax may have taken a hit. Lending institutions rely on business reports from these bureaus to determine the creditworthiness of companies seeking loans; and potential suppliers, clients, and partners may also purchase credit bureau reports to help them decide whether to do business with your company. So maintaining a good score is crucial for your company’s future prospects.
What can you do to repair your credit standing? First of all, obtain reports about your company from the major bureaus. Apart from those mentioned above, TransUnion, Cortera, ClientChecker, and a few others all may have information on your company. Make sure that the information in these reports is accurate and up-to-date, and fix any errors promptly. And if you are the business owner or a principal, then ensure that your personal credit score is calculated accurately as well. Individual credit reports in the United States (and many other countries worldwide) are compiled by Experian, Equifax, and TransUnion; contact all three bureaus, get copies of your individual credit reports, and report errors.
Make sure that any existing lines of credit that your company has access to remain open. Larger banks, themselves facing financial difficulties, have been canceling or capping lines of credit for individuals as well as small businesses. A closed credit card account or capped line of credit may be perceived as a negative event by a potential lender or partner. If you’ve had any closures, talk with your bank about reestablishing these lines of credit; banks are eager for business from reliable clients, and you may be able to work out an arrangement.
If your bank has informed you that it about to cancel your company credit card or line of credit, try to preempt this; you can offer to temporarily prepay against a credit card, or put up a certificate of deposit as security. Even if you will need this money for other purposes, at least you may be able to buy some time.
If you can, take out a loan, even a small one, even if you don’t need one. If you have delinquent loans on your business credit report, or a history of late payments, then taking out a new loan and making timely payments will boost your score. If a major bank won’t give you a loan, then explore microloan programs, which lend amounts as small as $500 to entrepreneurs and small businesses. Microloan programs have become widespread in the developing world, helping rural entrepreneurs establish themselves in small businesses; these programs have met with varying degrees of success. More recently, the idea has caught on the developed world. Grameen Bank and Accion USA are two organizations that provide microloans in the United States; the VanCity Credit Union has established a program of peer lending in Vancouver and elsewhere in Canada. And the Israeli Free Loan Association has lent over $100 million in the past twenty years to Israeli citizens.
Take a close look at your own receivables. Businesses that collect outstanding payments within 45 days are more attractive to lenders than businesses offering 120-day terms. You don’t want to lose your best customers by tightening up your collection policies, but examine your customer records and see where you might be able to speed up payments. Some of your customers may be having credit problems of their own; you can point out to these customers that, if they can show that they are paying off their invoices more promptly, their own credit scores will likely improve.
And if you are having trouble making payments to vendors, the most important thing is to communicate. You want to forestall a vendor from sending your account to a collection agency, or otherwise reporting your inability to pay. If you are fully communicative about your outstanding debt and propose renegotiating payment terms such that the amount can eventually be paid off in full, most vendors will be only too happy to at least consider your proposal. Debts that are delinquent, from accounts that have gone silent or disappeared, are rarely repaid in full, if they are paid at all. And a collection agency will keep a substantial percentage of any money it is able to extract from a delinquent account. Your vendor would much prefer to deal directly with you about your debt, especially if you’ve had good relations in the past.
Redo your business plan. Business plans are not just for start-ups; they can be living documents, reflecting how a company responds to changing circumstances. If you map out precisely how your company will see its way through a current crisis — how a new loan will be allocated, for instance — a lending institution will believe that you are committed to the future success of your business, not just looking for a quick way out of a financial crunch.
Financial difficulties can arise in any circumstances, for any number of reasons. However, it’s important to remember that there are steps you can take to improve your company’s credit standing, and restore the confidence of suppliers and other partners.
