In the previous post, How Credit is Effecting Your Business, we discussed how the credit crises has changed the way that business owners are operating. We also discussed the value of knowing the true FICO score and where to get it.
In this article we want to highlight some hidden costs that business owners need to be aware of in this new era of the continuing credit crises.
A few short years ago it was not necessary for principals or executives of a business to have to provide their personal credit information when applying for credit or services for their businesses. Today, it is a totally different environment and many times it is becoming very common for vendors to require a credit check of the company's executives.
So let's take a look at some areas where the a low credit score may affect the cost of doing business.
higher insurance premiums
Insurance companies are always trying to find ways to mitigate their loss exposure. In the pursuit of this endeavor they have been able to statistically prove that people who have a higher credit rating usually will file less claims on their insurance policies. This criteria is especially used in auto, health, and homeowners insurance. Now even liability and bonds issuers are pulling credit reports on applicants as a way to underwrite those policies. A low credit score can mean higher premiums or not being able to get the policy at all.
Higher Fess
A lower credit score will affect the amount of additional charges that banks and credit card companies charge. In some cases this may mean higher processing fees, application fees, as well as less accommodations by these same institutions. Where before you would be able to slide on a bounce check, today you may not only incur a large fee, but your account will be closed.
Higher deposits.
Many landlords have begun to increase the amount of deposit that is required based on the credit scores of the principals. This is no longer limited to residential property only. Now, commercial property managers are asking to view the credit reports of the company's owners and/or executives. In some cases lower credit scores can mean additional deposits in the form of pre-pay rents.
The same is true of utility and phone companies. Depending on the part of the country a business is in, it may mean having to pay for setup fees in advance.
The bottom line is that in an era where a lot of vendors have been hurt there exist a lot of fear. We are all experiencing the pendulum swing from easy credit to tight credit. This is not the end of the world, but does require business owners restructure the way they do business and be aware of where the possible snares are and also where opportunities are.
The Silver Lining
Not all is doom and gloom. In fact now is a great time to find what you may need to grow your business.
One area where there are now opportunities to get great deals is on previously financed equipment .
During these tough economic times companies who had leased equipment have either decided not to continue with the lease and returned the equipment, or are simply defaulting on the lease ,and turning over the equipment. The result is that many leasing companies are willing to make great deals to get rid of the surplus equipment.
For example, it is not unheard of to see a large copier that previously sold for $16,000 a year ago being resold for $2000. Similarly, if a business had leased equipment the leasing companies do not want this equipment back and will make incredible deals not to take it back.
These bargains are not limited to equipment, but also office furniture and even supplies. One place where these bargains are seen is in bankruptcy trustee sales where the trustee wants to get rid of the inventory as quickly as possible to complete the case. Here again there is a real possibility to obtain great bargains at pennies on the dollar.
So, for the smart business owner with cash, these tough times can mean a great opportunities to get the equipment that will help grow their business. Alas this to will pass and we all will see a better economy, and these opportunities gone. However, there will be other opportunities at that time if we all just keep an eye out for them.
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