Is the credit history of my business linked with my own?

Your credit history functions as a passport to access competitive company finance and it is the key to opening the door to new business partnerships with upstanding industry suppliers. Credit checks are typically conducted before professional relationships are forged to confirm that both parties are responsible traders.

A business juggling unmanageable debt may be on the road to becoming insolvent, which is where a credit check can mitigate the risk of bad debt. Running a credit check can paint an image of the financial health of the business and provide a detailed look into payment history. Conducting due diligence can shield the business from taking extreme risks and provide sufficient information to the lender or supplier to make an informed decision.

Keith Tully of?Real Business Rescue?explains why as a company director, understanding the cross over between your business and personal credit history can help you better position your business when accessing finance or building new relationships.?

Painting an image of your lending history

If you approach a lender to access company finance, their lending decision will be based on your credit history amongst other considerations. It will track your borrowing and repayment behaviour which will be used to assess your business for creditworthiness.?

Your credit history will also note any creditor action that may have been taken against you, such as County Court Judgments (CCJ) or?winding up petitions. These are clear warning signs that will illustrate your level of discipline and control when handling money. If you are in substantial arrears with creditors, this will raise a red flag, making the lender aware of your financial position.?

Your credit information is stored by credit agencies, such as Creditsafe, to help suppliers and lenders trade confidently. This information is populated from a variety of sources, including the Insolvency Service, Companies House, County Courts, and the Electoral Roll.?

Are my personal and business spending records linked?

If your business credit history is limited, as you have no borrowing or your business is newly incorporated, the lender may investigate further to build a comprehensive view of your financial history. To widen the scope and paint a detailed image of your financial handling, banks and financial institutions may access your personal credit history to assess if you are responsible with your finances.

If your personal credit history is accessed, the consequences will be determined by the type of check conducted, soft or hard. A soft credit check is unlikely to impact your credit standing, whereas a hard check could reduce your credit score if the loan or credit facility in question is refused. Your personal credit history will also shine a light on adverse behaviours, such as:

Insolvency

Your personal credit record will show if you have been declared bankrupt within six years, or longer if you are yet to be discharged. The same rules apply to an Individual Voluntary Arrangement (IVA) or Debt Relief Order.

Creditor Action

County Court Judgments (CCJ) or decrees will be visible on your credit record as an attempt by creditors to recover outstanding funds.

Live spending behaviour

If payments are overdue or paid late, this will be actively tracked on your credit record.

Financial performance

Your credit record will show your credit limits and if these are regularly exceeded.

Impact of Covid-19 on business credit history

As the economy took an unexpected turn because of the coronavirus pandemic, businesses on track with repayments and routine bills faced an unprecedented threat. The trio of Covid-19 lockdowns created long-lasting damage on company balance sheets, erasing consumer demand and evaporating cash flow. As businesses recover from the pandemic and lockdown restrictions ease, businesses are treading carefully to protect their credit history and minimise financial risk.

Your business will naturally mirror your attitude to money, and therefore any financial problems encountered personally may be mirrored on your business. By regularly assessing your financial position and working to build up a high credit score, you can unlock competitive rates and opportunities.?

Never seen you business report before?

Email me at [email protected] or call me on 02920856733 for access.