A business owner’s personal credit score can seal the fate of the business by determining access to capital, cash flow, and its ability to grow. Healthcare professionals who own practices rely on this marker of financial fitness as much as other entrepreneurs. Most medical practice owners need access to credit, whether it is to purchase or expand a practice, acquire equipment, upgrade technology, or temporarily cover cash flow shortages.
Perks of a Good Credit Score
Maintaining a good credit score is a key step to ensuring access to the best lending opportunities. “If you have bad credit as an individual, and especially as a business owner, you are missing out on amazing opportunities, and you are paying more for everything you do,” says Toya Lambeth of Fortress Credit Professionals.
Lenders base their decisions on multiple factors, but personal credit scores often play the biggest role in their decision-making. A high score increases your chances of approval and your negotiating power, and may get you approved for higher amounts or limits. Moreover, a good credit score translates to low interest rates on loans and lines of credit. Lower interest expenses can be a breath of fresh air for medical practice owners, who typically deal with significant overhead expenses and irregular revenue cycles.
How to Improve a Less than Ideal Score
Stay on top of it
The first step in assessing your borrowing power is to find out your credit score. Check your report periodically to track your progress and spot any potential problems. Physicians have busy schedules that can make it challenging to manage financial issues. A trusted personal assistant or spouse can ease the burden by keeping track of your accounts, making payments, and alerting you to credit changes.
“When you have negative items on your report, they can hold you and your business back for 7 to 10 years,” Lambeth notes. “But the good news is that anything can be deleted as long as there is a mistake.” Look for red flags on your credit report and dispute incorrect information promptly. Removing incorrect or outdated negative marks will help your score recover faster.
If your credit history contains negative items, the best strategy is to start repairing your credit. Some steps you can take are to open new accounts and pay them on time. Even partial payments can be beneficial, leading to a higher credit score in the long term. Establishing accounts periodically will increase your credit availability, resulting in higher borrowing power. However, avoid having your credit report checked too often, as this can bring the score down.
Make efforts to reduce the amount of debt you owe. Keeping credit card balances under 50% (ideally under 30%) of the total credit limits will provide a boost to your credit score.
Your credit score will benefit from having a good mix of credit cards and loans as part of your active credit history. Some creditors close credit cards that go unused for several months. It is important to use your accounts from time to time, to keep them open.
Patience and caution are key factors in this equation because there is no quick way to fix a credit score. Rebuilding your credit history will take time, but your efforts and patience will pay off.
Alternative Funding Options
The high burden of student loan debt that most physicians carry, particularly early in their careers, can make it difficult to qualify for SBA loans or other conventional loans that offer low monthly payments and interest rates. If your credit history is less than perfect, you may need to consider alternative lending options, such as short-term funding with higher interest rates. Access to capital for your business enables you to start or expand your practice while you are still building your credit history. Short-term funding may be available even with a poor personal credit score (600 or even lower), especially for financing medical practices, which are known for their high revenue potential. According to healthcare business underwriter Kristen Friszell, “If you are using the funds to grow your business and the resulting revenue exceeds the cost of the capital over time, then the higher-cost funding is a prudent investment in your business and your future.”