Taking credit is common among business owners. You have to maintain a good rapport with a lender, so it becomes easy for you to approve credit. With that said, you should utilize your credit efficiently once it is approved. If you misuse your business credit, there could be dire consequences. You can be listed as a payment defaulter, and that doesn’t sound good for your business.
If you had agreed to certain payments terms and conditions while availing of credit, sticking to it is how you can keep yourself sane. Let’s understand the risks and challenges you may have to face if you default on business credit.
Your business credit score may fluctuate
If you’ve been defaulting on payments consistently, you may have noticed your company credit score fluctuating or going down. Take note that your payment habits contribute to making your business credit report impressive or poor. If your business credit is unimpressive, your business credit score is likely to remain low. So, the lesson is to never default on business credit.
Delay in credit approval
When you default on the existing credit, lenders may not approve your next credit request, and rightly so. They may fear that you are not capable enough to pay back. Even if you’re considering pitching investors, you may have a hard time convincing them as they can access your commercial credit information report.
Increased rate of interest
You can expect an increased interest rate on your next credit request if you fail to pay the existing credit on time. You may find yourself juggling debts. The crux is to find a middle ground where you can pay your dues on time and make money simultaneously. This way, you don’t have to go through a low phase in your business.
Experience a cash crunch
Besides being on the list of credit defaulters, you may have to face a cash crunch phase. If you’re defaulting on your business credit, it means either you don’t have enough money or misused it. In both cases, you may have to go through the trouble. But you can always make things right. Start paying your dues on time and clear off your existing debt asap.
Poor market rapport
Earlier, we have mentioned how defaulting on business credit can have dire consequences. One of them is the poor rapport among suppliers and lenders. Your business may receive negative reviews. So, if you want to rebuild your rapport among your clients, you better learn about money management in business.
All the above-said factors contribute to creating an image for your business. We understand that going through this phase can be difficult, but it’s not hard to bounce back. You can always commit to bringing your business back on track by bringing small changes to your way of working.
Learn to reduce business costs and expenses. Maintain a cash reserve for emergencies. Know your debts and try to close them as soon as possible.
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