During turbulent economic times – such as those currently being experienced across the globe – businesses, and small businesses in particular, may find it challenging to access credit as the risks associated with borrowing increase.
“Accessing credit during tough times is likely to be more difficult. Banks and traditional loan providers will take the route of scrutinising the applicant’s credit history more intensely than usual to gain a full understanding of the business’ financial health and ability to service debt,” says Michelle Beetar, MD of Experian South Africa.
“Up-and-coming companies and small businesses may feel the pressure of not having the necessary security and business consistency to assure lenders of their ability to service their debt obligations.”
Beetar believes that this can – to an extent – be avoided if businesses proactively manage their credit score.
“It is essential that small businesses maintain a good credit score to avoid the risk of being denied the finance they require to grow or expand,” says Beetar.
“At the same time, it is important that the impact and consequences of all unhealthy credit score is always considered as this may affect how lenders, suppliers and even customers trade with you, and hold serious ramifications for your business’ reputation.”
Experian will be participating in the Credit Wellness workshops at the upcoming National Small Business Chamber’s ‘My Business Expo’, which takes place on 25 August at the Cape Town Convention Centre.
Beetar explains that there are a number of ways for small businesses to keep their credit in check, and build and improve their scores:
* Check your business’ credit score: In order to know where your business stands, it is imperative that business credit reports are checked regularly in order to verify the information and, to ensure that it is kept accurate and up-to-date. As a business owner, knowing your credit score status is as critical as any other business operational matter. By being aware of your business’ credit score, it is easier to make informed decisions and also address the gaps that may have an impact on your business
* Establish your business credit: With personal credit, creditors and suppliers increasingly using business credit reports to make lending and credit decisions, it is important to establish a separate credit report for your business. This robust report gives lenders and suppliers information about your business and helps them to make informed decisions when you apply for loans or even when negotiating favourable credit terms. This report can reflect your business’ good standing and act as a strong case when applying for finance.
* It is all about timing: Dishonouring a payment obligation in 2014 may still have repercussions in 2016 as historical payment behavior plays an important role in calculating your business credit score. It is therefore advisable to always honour payment obligations or provide early advisory if there are challenges with payment so that an alternative arrangement can be made on time.
“There are a number of ways that small businesses can navigate the tougher economic environment and access the finance they require in order to grow and expand,” says Beetar. “A key part of this lies in taking a more proactive and responsible approach, such as establishing and maintaining a good business score, that will ultimately assure lenders of their credibility.”