A business credit report is essentially an assessment of your business's credit worthiness. Business credit involves assessing the risks that a business might be unable to pay for unexpected expenses and obligations. High risk industries often have a poor credit history. It means that they have a history of not being able to pay their debts or meet other financial obligations. This includes personal loans, home loans, and car loans. There are many companies today that offer credit facilities to these high risk industries.
There are many ways for a business to acquire bad credit business credit report. They can get the information about the credit report through their existing lending institutions, banks, or credit unions. Most lending institutions and banks will not provide business credit facilities to those who have a poor credit score. The reasons are because most lenders have a good understanding of the risks involved with lending money to people with poor credit histories.
High risk industries include small and mid-sized businesses. In addition to having a poor credit score, these small businesses will be required to take on very high levels of risk in order to get established. For instance, if a small business is successful enough to secure a loan with a bank but that business is established and has a steady cash flow, that business may be eligible for a line of credit from that bank. However, if that business relies on only its own funds to meet expenses and grow, it will be unable to meet the financial obligations that accompany any growth – such as paying salaries and growing inventory.
High risk industries typically sell a product or service that consumers need. In order to get new customers and to maintain a positive reputation with existing customers, high risk industries must effectively market themselves. A marketing and business strategy geared to appeal to those without good credit will likely result in failure. Many financial institutions have a process that they go through prior to granting any kind of loan.
If a company can show that a significant portion of its sales are from a small group of high-risk clients, then that company will be able to qualify for credit from that institution. The difference between qualifying and getting a line of credit, however, comes from the level of risk associated with that particular customer. Any business that sells more than 50% of its products or services to high-risk clients will have to meet credit requirements. This percentage will vary depending on the institution that the business applies to. It will also vary depending on the amount of risk that the business presents. For instance, a car dealer will likely be regarded as a lower risk company than a restaurant, because the car dealer will be less likely to default and therefore less likely to draw attention to itself as a high risk business.
Businesses that are considered high risk will have their applications reviewed by the institution that they apply to. If the business is approved for credit, there will be an inquiry made against the business' credit report. Credit inquiries will take place on both sides of the relationship: on the business's side, the credit report will be scrutinized by a third party company who will go over the credit report in order to determine if any errors or other problems should be brought to the consumer's attention and, if so, whether those errors or problems are enough to merit a credit rejection. On the consumer's end, the report will be pulled by the credit reporting agency (usually Experian) which will send a letter of inquiry to the business, alerting the business that it has been placed on their credit report as a high risk client. If the business does not respond or disputes the listing, it will receive a letter of credit denial, which essentially states that the business has not properly paid the credit it was owed, or is in a poor financial position to pay back the debt.
These types of businesses can expect to get themselves into serious financial problems very quickly if they do not pay their debts promptly or properly. As mentioned above, the credit reporting . . . . . . companies are not responsible for correcting any errors or inaccuracies that are found within the consumer's file; they are simply reporting information based on the information they have been provided with by the lenders and have no way of determining how accurate that information might actually be. To make matters worse, these types of companies often list businesses with a poor payment history even when they have made substantial payments in the past and will not consider the small amount of money spent on credit versus income in order to justify such a high risk rating. In short, a business that may have previously had a great payment history will be considered a high risk industry when compared to one without a history of poor payments, even when the lenders have similar terms and conditions between the two industries.
This type of credit score is not the only aspect of business credit that affects a lender's decision to issue credit to a business. Lenders also look at the business' assets and liabilities, the businesses' credit history, and the business owners personal credit history before deciding whether or not to lend a business credit card or allow it to process credit card transactions. While businesses do not want to be in a bad credit situation any more than anyone else, it is important for a business owner to understand the importance of keeping a good credit standing, even if that means applying for a business credit card that may carry a high interest rate. Keeping business and personal expenses as accurate as possible, while avoiding the use of credit cards in order to meet expenses and meet business goals can help business owners avoid incurring a bad credit rating. It may be tempting to spend more money than necessary on business expenses, but in the end it will cost the business owner much more in higher interest rates when they are unable to process credit card transactions due to a poor credit rating. Business owners that understand the value of maintaining a good credit standing will be able to avoid being in this situation and will be able to provide a better service to their customers.