Between uneven cash flows and concerns about meeting break-even, economic crises like the Covid-19 pandemic (also called the Great Lockdown) and the 2008 global financial crisis were highly stressful for business owners.
According to a survey of 4,500 businesses in 45+ countries by the International Labour Organization, over 60% of businesses did not have sufficient cash flows during the Covid-19 pandemic.
Despite the fact that the economic crisis doesn’t directly affect a business’ credit score, the resulting crunch can lead to a business owner overusing their credit options to cover rising expenses. This is especially true for presently accessible credit like a business credit card. As the demand for products/services drops and profitability reduces, business owners may be forced to take such credit avenues to meet ends.
Here are some of the ways you can protect your business credit score during such crises:
Optimize credit utilization
The volume of credit you are using through your business credit card can significantly impact your business credit score. The amount of credit a business utilizes per month is referred to as the credit utilization ratio.
Most credit scoring bureaus recommend keeping the credit utilization ratio, the amount of credit utilized per month, to less than 30% to ensure a healthy credit score. Therefore, if your business credit card issuer offers a credit line of Rs 4 lakhs, you should keep your monthly balance to lower than Rs 1.2 lakhs.
Monitor your credit score regularly
During challenging times like the Covid-19 pandemic, you, as an entrepreneur, have to be highly proactive about your business credit score. To this effect, you have to monitor your score regularly to ensure complete accuracy.
Through this, you can spot and report any mistakes or fraudulent activities in your report to avoid any damage to your rating. While you may think that regularly checking the credit score may harm it, self-checking is considered a soft inquiry.
Make payments on time
When you are using a credit instrument like a loan or business credit card, make sure that the bill is paid on time. Your payment history is the highest impacting factor on your credit score, such that even one missed payment can result in a drop of around 100 points in the score.
One key aspect that most businesses miss in payments is that the bill must be up to 30 days late before it can be reported as a delayed payment. Therefore, if you miss the date of payment by a week, you can make the payment within 30 days without hurting your credit score.
Moreover, you can opt for a top business credit card in India, like founderscard, which can give you up to 51 days of interest-free credit period, giving you ample time to pay your bills.
Get business credit with care
While getting business credit, either through a loan or a business credit card, can help your business stay afloat during such a crisis, you must also think about the impact on the credit score and the long-term financial health of the business.
If you decide to take business credit to ease your hardships during such time, you have to ensure that you minimize spending on non-essential overheads, pay back all the bills on time and have an emergency reserve fund in place.
Maintaining a good credit score through such challenging times is important for your business as it opens up doors for low-interest credit opportunities that can help your business recover and grow after the crisis.
A business credit card is one of the best and most effective ways to improve your business credit score. founderscard, the leading business credit card in India, offers the best-in-line credit limit for businesses, with up to 51 days of interest-free credit and an EMI conversion feature that helps lighten the monthly payment amount for large purchases.Interested? Visit www.founderscard.in today to know more.