Beyond Credit Scores: Strategies for Supporting Businesses with Bad Credit in 2024

How good is your business’s credit score? Chances are it’s not as good as you’d like it to be, yet even enterprises with lackluster credit can still hope to secure financing. According to business expert Jay Avigdor, President and CEO of Velocity Capital Group, strategies for financing such ventures not only exist but can also turn their prospects around.

“If you can, establish relationships with lenders when your business is turning a brisk profit,” Avigdor says. “That way, you’ll be able to lean on these connections in your times of need. If not, however, there are still many things businesses with poor credit can do to raise the money they need.”

Avigdor’s first tip for business leaders in this predicament is to seek financial education.

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How to seek financial education

“Knowledge isn’t the same as power, but having it positions you to make good decisions,” Avigdor says. “As a result, you’ll naturally become more influential, which is why it’s important to master debt management and financial planning.”

In particular, Avigdor notes that financial education can help entrepreneurs address any problems that could be dragging down their business’s credit score. “If you learn about the criteria that determine credit scores, you’ll understand better how to diagnose your business’s financial health,” he explains. “You’ll also be able to assess your practices proactively and exploit areas for improvement. In addition, this kind of education should equip you to understand the various options for financing so you’ll be able to make sound decisions that gradually improve your credit score. Remember, it’s not just the score that counts — it’s what’s behind it!”

Similarly, Avigdor recommends developing a strategic plan.

How to develop a strategic plan

According to Avigdor, an effective strategic plan would manage cash flow more effectively, reduce unnecessary borrowing, and mitigate potential risks. “This means you’ll need to understand the underlying causes of any financial problems you’ve been running into,” Avigdor says. “It’s hard to address the root causes of issues effectively until you’ve identified them correctly.”

According to Avigdor, effective strategic plans should include clear, concrete, and measurable benchmarks, as well as a timeline for achieving them. “These should not be speculative or aspirational,” he says. “Make sure your forecasting and budget are accurate. You should also have a clear process for tracking expenses, payments, and revenue.”

Since it’s common for business owners to struggle to view their operations objectively, Avigdor raises the possibility of enlisting the advice of funding experts. “This is often the best approach since you can get the answers you need faster and more accurately,” he says. “Moreover, bringing these trusted partners on board can help establish credibility with lenders.”

How to explore alternative financing

Avigdor’s next tip is to explore alternative forms of financing. “While it’s a good idea to investigate traditional bank loans, don’t limit yourself to them,” he says. “This is especially true if your credit score would result in a less advantageous interest rate.”

In addition to traditional bank loans, Avigdor recommends considering government programs. “The government offers many loans to small businesses and startups,” he points out, “but the one problem with these is that they are a one-and-done source of funding — they don’t build a long-term relationship.”

For that reason, Avigdor suggests considering merchant cash advances, peer-to-peer lending, microfinance institutions, or crowdfunding as options. “These alternatives can be more flexible, and doing them once can create connections that will prove valuable again and again as your business grows into the future,” he says.

The importance of relationships also features in Avigdor’s next tip: building a support network.

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photo credit: Gustavo Fring / Pexels

How to build a support network

“Getting good advice from experienced, intelligent people helps with most things in life,” Avigdor says. “Funding businesses is no different.”

According to Avigdor, the best lenders will not only provide material support in the short term but will also enter into a relationship you can turn to in the future. “It should be a partnership,” he explains. “Your lender should look out for you and act in your best interests, not just eye their own bottom line, and might even be in the position to introduce you to other key business contacts.”

In addition, Avigdor recommends approaching your own business with the same kind of long-term perspective.

How to focus on long-term goals

To succeed in the long term, it’s necessary to review your business’s finances regularly. “It’s not enough just to plan,” Avigdor explains. “You need to check in with the data and crunch the numbers on a routine basis. Take a hard look at your financial status and see whether or not your strategies are actually working.”

In particular, if the numbers continue to be unfavorable, it may be advisable to make changes. “It can take a while to improve creditworthiness,” Avigdor says, “so don’t get discouraged if you don’t see the needle move right away, but don’t stop trying, either. Keep monitoring and adjusting as necessary and, eventually, your efforts will pay off.”

That’s why Avigdor recommends taking the long view. “Build a solid foundation that will sustain your business and open up growth opportunities,” he says. “Do that, and someday you won’t even remember ever having had a low credit score.”

Don’t let a low credit score defeat you

According to Avigdor, entrepreneurs shouldn’t take a low credit score personally. “Every business experiences obstacles at times,” he says. “That’s just the nature of business. The good news is that these obstacles don’t have to defeat you.”