Good credit history: Is it essential to your business?
Worried about your credit history? Find out how important it is, who will need to be credit checked in your company and how to overcome bad credit
Credit files: we know they can be detrimental to a personal mortgage or loan application, but how important is having a good credit history when you’re starting a business?
Keep on reading to find out what impact a poor credit history can have on your start-up business goals, and what you can do about it.
Whose credit history is important?
Whether you’re seeking finance for your business or simply looking for a phone contract, the first point to note is who’ll be credit checked.
If you’re working as a sole trader, it’s likely that your personal credit history will be checked. And, if you’re operating a new or a small business, regardless of type, the credit history of directors, partners and proprietors could be taken into account. This will depend on the company running the credit check.
When does credit history really matter?
If you have poor credit history or none at all, you and your business present more of a risk to financial institutions and lenders, because it’s more difficult to assess how reliable you are at making repayments, for instance.
As banks become more selective on whom they’ll lend money to, having a good credit history can seem more important than ever. If you’re relying on the High Street for your payment and banking needs, this is where you might face some obstacles.
1. High Street business banking
Opening an account for your business is an essential step for managing expenses and completing an annual tax return. If you intend on opening a business bank account on the High Street, it’s likely that you’ll need to pass a credit check before your application is approved.
2. Business financing
The demand for business loans is increasing. As a start-up, funds can be limited and some additional help is often needed to get things off the ground. A poor credit history can impact whether you’ll be approved for funding in the form of a loan, business overdraft or corporate credit cards.
Once you’ve ascertained how credit could impact your start-up, it’s time to start thinking about what you can do about a problematic credit file.
Overcoming bad credit
Small business lending by banks is still declining – but the good news is, even if you haven’t built up a strong credit history for your business, there are other means of getting finance and managing expenses. Seeking a solution away from the High Street can mean removing the need to pass a credit check – here are some options to get started:
1. Alternative banking options
Some online banks or prepaid card companies like Cashplus have recognised the difficulties that come with limited credit and trading history. No credit check’s involved in the application process, and business accounts come with both overdrafts (subject to approval) and access to online and mobile banking.
2. Start-up schemes and bad credit loans
If you’ve been trading for less than 12 months, your business may be eligible for a government funded, low cost, unsecured loan. Alternatively, if you’re willing to take a loan with a higher APR, some companies will offer loans to start-ups with limited or damaged credit history. In terms of value for money, this may not be ideal, but it could be worth getting access to the start-up capital your business needs.
Having poor credit or limited trading history can cause some setbacks to get your business off the ground. But, if you’re willing to look beyond traditional banking, it doesn’t need to be a problem. In most instances, good credit will make things easier, but it’s not essential to achieving your business goals.
Nick Biggam is commercial director at www.apsgroup.com. APS is a leading payment solutions company and the provider of the award winning Cashplus Business Account.