Tips for Protecting Your Business Credit During Times of Economic Uncertainty
Carrying debt is a common problem for many small businesses, but debt can be an entirely new level of concern when the economy is in a state of uncertainty. For some, the debt can reach a point that the business needs to take certain measures in order to protect itself and its credit.
One of the ways entrepreneurs can try to reduce their debt is to negotiate settlements with their creditors. While this is sometimes effective, it is not without its risks, and keeping at least one line of credit open is important if you want your business to withstand the credit consequences.
What Happens When a Debt Is Settled?
If your business owns a substantial amount of debt and it is being reported to the credit bureaus, then negotiating a debt settlement will certainly help resolve the problem quicker and put an end to the negative reporting. But, in almost every case, the creditor will also close the account and require any and all credit cards to be destroyed or sent back to the issuer.
When a debt is settled in this manner, it has an immediate and negative impact on the business’s credit report, because it creates two negative incidents – it marks the account as settled for less than what was owed, and it shows that the account was closed.
The Importance of Keeping Credit Available When Settling With Creditors
When you settle with your creditors for less than you owe, you have to be prepared for the positive and negative aspects. You also need to keep one eye on the future of your business and its credit building needs. Therefore, whenever you start negotiating with your creditors, try to keep at least one form of credit open.
Not only will the credit account come in handy should your business need a source of funds, but the open account will also help protect your business credit by keeping at least one account open and current. You may find it impossible to obtain any future funding from those creditors you settle with (at least for some time after the settlement), but on the other hand, you can eliminate a substantial amount of debt for considerably less (and quicker) than you would have otherwise had to deal with.
When deciding which credit account to keep open, choosing a low-interest form of credit with the lowest balance is ideal, but understandably, this may not always be possible.