Tips To Overcome Your Business’s Bad Credit History


Many new or small businesses, at one point or another, find themselves in a situation where they are low on cash and in desperate need of a cash injection to get them out of a bad situation.

In today’s market which thrives on the high risk, high reward principle, many individuals and businesses make investments based on what they expect to make of them. Most of the small business owners do not have the capital themselves to launch their business idea in the market and the start-up costs must be covered with external financing. Loans, advances, and credit are all used to get a new business venture off the ground. But when the time comes to make the monthly interest payments on these loans and repay it, the business finds itself in trouble.

In the competitive business environment of today, gaining market share is not easy by any means for a new entrant in the market. It can take years for a new business to become successful and until then, the business is likely to struggle with its finances from time to time. One major cause of this struggle is the failure to keep up with loan payments and maintain a sound credit history.

Credit history is an indicator of whether a person or a business is trustworthy enough to lend money to, depending on their willingness and ability to pay it back on time. Agencies nowadays have devised multiple methods of determining credit scores or in simple terms, the creditworthiness of businesses or individuals. The business’s credit history (i.e. how quickly and efficiently it makes interest payments and loan repayments) is used for this purpose.

Why is credit score so important for a business?

The credit score acts as a trust report for potential lenders, giving them an idea of how trustworthy and reliable business is in paying off its liabilities. By determining the borrower’s ability to pay back its loans, the lender can decide whether the risk associated with lending is within acceptable limits or not. The higher the credit score, the more likely the business is to repay its liabilities, making it an attractive investment option for future lenders.

Since the credit score is such an important indicator of the business’s financial stability, it is important for every business to keep a regular check on its credit scores and to be diligent in ensuring it remains within a reasonable range. A good credit score can help the business secure greater financing on better terms while a weak credit score acts as a major obstacle in obtaining funding from external sources.

How can a business overcome a bad credit score?

If your business has had trouble maintaining a good credit score, you should know that you are not alone. Every business has its ups and downs and building excellent credit scores is nowhere near easy for small businesses. The good news is that there are various ways to tend to a poor credit score and improve it significantly by changing your ways and keeping ahead of your liabilities.

Here are some tips to help you overcome your bad credit history and improve your credit score:

  • Choose your credit wisely

 If your business has trouble paying off its existing liabilities, it is important to do some retrospection and think about where you went wrong before you can start working on building a good credit score. This means not piling up debt unnecessarily and only taking on liabilities that you know you will be able to pay off in the long run. Short term financing options are often more appropriate in such a situation as there is no longterm commitment.

If you need short-term financial support, you can search for a merchant cash advance bad credit – these are advances against your future sales that do not require outstanding credit scores to qualify. Moreover, this option doesn’t damage your credit score since there is no need to pay fixed interest when there is a slowdown in sales.

A business credit card is another useful option to finance immediate expenditures. It is easily available for any cash shortfalls and interest charges can be avoided by paying off the credit on time. Timely payments will also help build a positive credit history and improve the relationship with the bank. The better the impression on the lenders, the more lenient they will be with future loans.

  • Shop around for the best terms

 The business should always be on the lookout for lenders who can often better rates and terms, instead of sticking to the same lenders. Scanning the internet for potential lenders is an effective way to do this. The benefit of the internet is that it is a lot quicker in its attempt to connect you with alternate lenders who can often provide much better options than traditional banks. Many times businesses that have a poor credit history are unable to secure the funding they need from traditional banks, but they can easily find alternate lenders who are willing to finance their businesses.

So, if you ever feel like your current long term lender isn’t being fair and reasonable with the rates or terms on their loans considering your loyalty and continued business relationship, you should always venture out and seek better alternative options.

  • Keep an eye on your credit facilities

 Maxing out your credit cards, business or personal is a crucial mistake to avoid. It is important to watch over your credit facilities and evaluate how they are being used from time to time. It’s not unusual for businesses to arrange several facilities with multiple lenders and lose track of their payables over time. This will only make matters worse. As discussed above, it is much healthier for the business to take out smaller sums and make quick payments to ensure the credit score doesn’t suffer. Staying well below your credit limit is always a good idea for a business with a bad credit history.

Credit terms need to be treated like friendships. The more you test the limits and patience of your lenders, the more they will avoid engaging with you in the future. It won’t be long before every lender becomes aware of your bad reputation and stays clear of dealing with your business.

  • Always pay on time

How to overcome bad credit history? Start building a good credit history – it is as simple as that. No matter what the situation, never fall behind on any payments. Avoid delays on all accounts, even the small ones. There might be some payments that are not listed on your credit report but the truth is, if you fail to make a few payments on time, they will surely end up there. And once the credit bureau gets hold of the information, it can stay on your credit report for years, ruining all your efforts of rebuilding your credit.

  • Maintain a sound personal credit score

 A small business is usually in the form of a sole proprietorship that has a small team of employees working for the business. Under this structure, the owner’s capital is the business’s capital and vice versa; the business is not a separate legal entity.

For small businesses like these, lenders always consider the personal credit score of the owner when granting loans to the business. If the owner himself has a poor credit history, this reflects poorly on the business as well. After all, it is the owner who will manage the business’ finances. By maintaining a sound personal credit score along with taking measures to improve the business’ credit score, the business can rebuild its credit.


 These are just a few ways a business can overcome its bad credit history, improve its credit score and secure future funding to help with expansion and various other cash requirements.

It is worth mentioning here that bad credit history is never the end of it all for any business, and it is always possible to start afresh.

There are many ways a business can recover its reputation in the market; it just has to be diligent and efficient in its dealings. Remember, your business will always be on the right track if you consider credit as an obligation that needs to be paid off as quickly as possible, instead of free cash.