Protecting your business credit in a crisis

Tips to help protect your business credit in a crisis

Businesses all over the country are in survival mode as the effects of the current global pandemic continue to take their toll. While it may be harder than ever to maintain cash flow and make ends meet, it is still important to protect your business credit so you’ll be able to borrow money at reasonable rates when you need it. Here are some ways you can help maintain sound business credit, even when times are tough:

Figure out what you're able to pay

Take a look at all your bills and figure out what you're able to pay. Do everything you can to make payments on time, even if they are just the minimum amount due. While this won't do a lot to get your balance paid off more quickly, it will keep you current and won't have a negative impact on your credit score.

If you recently received a small business loan, whether it was a Paycheck Protection Program (PPP) loan, a disaster assistance loan, or otherwise, you may be able to free up other funds, which can help you keep up with your payments. Just be sure to keep funds separate and to remain in compliance with any terms. For example, PPP loans have strict requirements for what the money can be used for, which is primarily payroll and costs for paying rent or mortgage on your place of business.

Set up automatic payments

If you are able to make payments on time, it's a good idea to set up automatic payments to ensure they're never late. Again, even just paying the minimum amount due each month will help you keep your credit in good standing. If you are concerned that you won't have the funds in your account to cover payments, you can turn automatic payments off. You don't want to run into any overdraft fees, because these can quickly add up and put your financial situation in even worse shape, but as long as you're able to keep your balance high enough to cover the costs, automatic payments can be ideal.

Contact your creditors

If times are tough for your business like they are for so many others, it may be worth contacting your creditors to see if they are offering any assistance. Some may be willing to be flexible with payments and interest rates, even if on a temporary basis. If you know you're going to have trouble making payments on time, you should definitely contact them before the payment becomes due. This will help you get ahead of the issue rather than simply racking up late fees and a growing balance.

Limit your purchases as much as possible

Under the current circumstances, it's unlikely that you're making large, unnecessary purchases as it is, but make sure that remains the case. Right now, you want to limit even minor purchases to what is absolutely necessary for your business's survival. The last thing you want to do in such an uncertain time is to add more debt that you might not be able to pay off. Even if your business has been closed, and is ready to re-open, you can't expect sales to return to their pre-pandemic rate. It's more critical than ever to be careful about cash flow, and you may need your credit to help you out of a jam in the future. Keep your balance down now to give yourself some breathing room.

Keep your business credit separate from personal credit

You should have a business credit card and a business bank account. Never use your business credit or bank account for personal purchases or expenses.

As Credit Karma says, "Keep your business card strictly for business and your personal credit card for personal expenses to make your taxes easier down the line. Otherwise, follow all the good credit card habits you would use to build good personal credit — such as keeping your credit utilization low and making consistent, on-time payments."

Ensure your business credit report is accurate

Check your business credit report regularly and keep a close eye on the details. Make sure the numbers look right and that there is not inaccurate information being reported, which could damage your business credit score. 

Maintaining a good business credit score is important because it can help you get financial assistance when you need it. It can even reflect on your personal credit. Nobody knows what the extent of the coronavirus crisis is really going to be, so the more you can protect your credit now, the better poised you will be for survival in the future.

For resources and information on how California Bank & Trust can help you, contact us today.[cite::171::cite] [cite::172::cite]