Although Indian corporates have found themselves in the news recently due to the slump in growth, it was theThomson Reuters statistic that one in fivecompanies could not repay their debt that puts a damper on things. Corporate debt might be a serious concern for businesses, but personal debt also happens to be a point of debate. In fact, personal debt can have an equally devastating effect on the growth of a business as corporate debt, and here’s why.
A Request For Finance Requires Due Diligence
Before a bank or potential investor makes the decision to fund a business or invest in it, they do their fair share of research before committing to a project. Part of the research includes a look at the parties behind the business. Their information needs to be beyond reproach, which includes their financial history. If this information comes back as negative, the banks or investors may refuse assistance. This is a matter of risk to investors, as the owners of the business will need to be trusted with large sums of money. Theirpersonal debt situation could place pressureon the business, and investors know this.
It Takes Time To Remedy Bad Credit
Businesses sometimes require fast decision-making in order to get a new customer or land a new project. If the decision is based on repairing a credit record first, it could place an unnecessary hurdle in the way. On average, it takes between 12 and 18 months to repair a credit score. The best way to get that credit rating back up, is to settle debts, according to AAA Credit Guide (http://aaacreditguide.
Credit, If Granted, Can Be Expensive
Not only is credit under these conditions expensive, but the terms and conditions may be somewhat odious. Borrowers want to see that theperson they’re lending to is trustworthyand carries low risk. Those who have a good credit history show borrowers a few things that tend to mitigate their risk. These include:
They’ve proven the willingness to pay
It reflects that they have the means to pay
Trends often highlight if potential issues lurk on the horizon, such as late payments
If a customer doesn’t satisfy these points, the lender will feel under pressure and their risk margin immediately increases. They will try to make the risk a little more favorable with high interest rates, fees, and even a list of conditions that customers need to fulfill.
A bad personal credit history hits a business where it hurts the most: reputation, money, and time. When these three levers don’t work optimally in a business, owners have a hard time keeping things together. Working on a good credit score should have the same priority level as business growth because ultimately the two will cross paths at some stage.
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