Does My Business Credit Score Impact Approval for Debt Relief?

If your business is struggling under a heavy debt load, you may be wondering if your business credit score will affect your ability to get debt relief. The short answer is yes – lenders do look at your business credit scores when considering a debt relief program. But there are still options, even if your scores aren’t perfect.

What is Business Debt Relief?

Business debt relief refers to programs that help companies in financial distress by lowering or eliminating some of their debt. Some common types of business debt relief include:

• Debt consolidation loans – Combine multiple debts into one loan with lower interest
• Debt settlement – Negotiate with creditors to pay a lump sum that is less than what you owe
• Bankruptcy – Legal process to eliminate or repay only some debt under court supervision

So business debt relief can provide much-needed financial breathing room. But creditors will scrutinize your business’s finances first, starting with your business credit scores.

The Importance of Business Credit Scores

Business credit reports and scores work differently than personal ones. Instead of FICO scores, business scores come from the major reporting agencies like Experian, Equifax, and Dun & Bradstreet.

Lenders use these scores to quickly assess a business’s creditworthiness and risk level. In particular, they look at:

• Business Credit Risk Score (Experian)
• PAYDEX Score (Dun & Bradstreet)
• Intelliscore Plus (Equifax)

In general, higher scores indicate better credit management and lower risk. Many lenders have minimum score cutoffs for loan approval. And even if you qualify, lower scores can mean higher interest rates.

How Business Credit Scores Influence Debt Relief

When you apply for any debt relief program, the lender will check your business’s credit reports and scores from one or more agencies. Specific impacts may include:

Debt Consolidation Loans

These combine multiple debts into one loan, with more manageable payments. Lenders will check your business credit scores to determine eligibility, interest rates, and loan amount.

Debt Settlement

With debt settlement, a lender negotiates with your creditors to let you pay a lump sum that settles debts for less than you owe. Here again, business credit scores indicate how risky it is to settle with your business.

Bankruptcy

Declaring bankruptcy stops collection calls and wipes out or restructures debts. But it leaves a lasting scar on your business credit history. Filing bankruptcy with already poor business credit scores can badly damage your scores for years.

In all cases, the better your business scores, the better your chances of approval on favorable terms for debt relief programs.

Improving Your Business Credit Scores

If your business scores fall short of lender requirements, take steps to improve them before applying for debt relief. Just 6-12 months focused on credit score improvement can make a big difference. During financial hardship, prioritizing business credit should be part of your recovery plan.

Debt Relief Options for Any Business Credit Situation

Even if your current business credit score is less than stellar, viable debt relief options still exist:

Debt Management Plans

A type of debt consolidation run by credit counseling agencies. Payments are consolidated and fees negotiated lower. Creditors may not check business credit scores as long as they get consistent payments from the agency.

US Treasury Emergency Relief Funds

The American Rescue Plan offers over $28 billion in grants and low-interest loans for struggling small businesses through the end of 2022. Funds don’t require strong credit scores and can be used for operating costs or paying down debt.

Sell Assets to Pay Down Debt

Selling unused equipment and other assets to pay creditors directly improves cash flow and debt balances. Business credit only damaged if you miss payments to creditors in the process.

Informal Agreements with Creditors

Discuss your financial hardship and negotiate revised repayment plans directly with creditors. If both parties cooperate voluntarily, business credit scores unaffected.

The bottom line is business credit scores do impact the potential for debt relief, but they don’t close the door completely. Be proactive about improving your credit profile while also exploring customized debt relief solutions for your company’s situation. With persistence and a plan, you can find an option that works.