There are many businesses that get in high water with their credit from debt collection the same as individuals can. Many who open their own business, use their personal credit to run their business which can have everything taken from them if payment on any type of business loan is not made on time or paid at all. There are several risks as well as payoffs when it comes to owning a business but being aware of how a sudden debt collection(s) can impact your business credit is important to understand.
Here are a few ways of how your business credit can be impacted with a debt collection.
Personal and Business assets
The scariest idea to have is the fact that when you go into debt and a collection has been placed on your credit, without addressing a hardship, you are responsible, and your assets can be seized. This is where a lot of business individuals go toward bankruptcy. When a personal guarantee is grant for a business, some business debts can affect your personal credit accounts as stated by Pacific Collection Group, a debt collection agency since 1983. They also inform their clients that when owning a business. The Fair Debt Collections Practices Act, for example, does not apply to them and their business as it would if they were a consumer.
The most affected will be those that are listed as Sole Proprietors or DBA’s. This is because the bar is set low when it comes to this tier one level of running a business. This are the type of guarantee’s that do have to use their personal information and it ties in with their business. Not many stipulations are needed expect for registering, zoning conformance, and sales tax. When a business credit is established under this tier, financial loss and damaged scores will be deeply impacted. When a loan is defaulted, a lender can reach into other types of income being made by the owner, and any business assets that the company has rendered in and can file a suit. Therefore, business goes down, you are going down with it.
The Three Credit factors
Now that there is an understanding of how a personal credit can be tied to the business, let’s understand the credit scores of your business and how that impacts your business.
There are three business credit reporting agencies: TransUnion, Experian, and Equifax.
When a debt collection is placed on your report, these three reporters are notified. The same way as it would affect an individual from buying and obtaining things, the same happens with your business. What happens when you run out of not only product, but took a profit loss and don’t have enough to fulfill orders? The first thing to think of is a business credit card if one has not already been applied for. Two things can happen, the business card credit can be reduced with the line of credit or completely denied because of the collection that has been placed on the report.
A business can be affected by the Delinquency Predictor Score, Financial Stress Score, Supplier Evaluation Risk Rating, and the PAYDEX score.
The four mentioned above are critically important because they impact how your business operates and if it will stay in business. After a 12 month report the Delinquency score shows if you will run out on lenders. A class score of 1 indicates that you will not be able to pay the loan given for your business.
The Financial stress score, and this is best put in words by Pacific Collection Group, this score predicts how much financial stress your business will experience within the following 12 months. Who wants to have financial stress when running a business? If a debt collection appears, so will the stress, and so will the decrease in finances.
The Supplier evaluation risk rating applies for businesses that are suppliers to other businesses. Think about Yelp and the reviews that are seen or consumer reports on a search engine. When there is a negative remark, consumers think twice and eventually will choose someone else. No matter how great your pricing is, if it looks like you can’t be a trusted supplier, they will not buy, and your business will not strive. A debt collection on your report can raise this rating.
Lastly, the PAYDEX score is an indication of how your business pays the bills or pay at all. The higher the score, the more likely a business will pay its bill and pay the in full on time. Debt collection? Already the score has gone down because something was not paid. Lenders will not give an extension nor will business credit card companies for approving an increase or application.
When worse comes to worse, look into your debts when it comes to your business. There are too many risk factors for falling behind and have a report. This impacts a business and the credit score beyond foreseen measures. Understand that personal credit can be affected depending on how your business is registered and if you have a personal guarantee. Contact a debt solution agency to help understand your options to reverse any negative damage to your business credit.