Why it Pays to Monitor Your Business Debt?
Keeping tabs on your business debt is a no brainer, while to some folks, the concept is foreign. It isn’t so much that they don’t know they should keep an eye one it, it is just that they do not know what to look for. Is this you? Do you know you have debt there, and that you shouldn’t let it get out of control, but you are not sure what you should actually be looking for when it comes to monitoring? These ideas should help.
Watch Your Ratio
One of the most important aspects of debt is the debt to credit ratio. For the sake of your business’ financial health, you do not want to let that ratio get too high. There is more to it than that, however. The debt to credit ratio is also a major factor in the business credit score. Keeping the ratio low is vital to keeping the credit score high, even you make all of your payments on time.
For example, if you have $100,000 of available credit, and you have $99,000 in debt, your debt to credit ratio is very high and you need to work on that. If however, you have the same available credit and only $8,000 in business debt, you are in pretty good shape. The first example is a debt ratio of 99%, while the second is 8%. The lower ratio is better for your credit score and your financial health as you are not as likely to become maxed out if interest begins building faster than you can pay off the principle.
Monitor Your Credit
There are many factors that affect a business’ credit score in addition to the debt to credit ratio. Keep an eye on your credit report on a regular basis. Obtaining a copy of your credit report annually is pretty standard. Look for mistakes. Are there accounts or charges that do not belong to you? Are you being reported as not making payments that you know you are making? Are personal accounts showing up on your business’ credit report?
Once you find mistakes you can act to get them corrected. Maybe your funds are being credited to the wrong account. Get that issue fixed and then notify all credit agencies in writing of the mistakes. Notify them, in writing, of any accounts that do not belong to you also. Keep an eye on the credit report until you can see that the mistakes have been corrected. Repeat this process on at least an annual basis.
Out of sight out of might is far too true, and far too complacent to apply to your business debt. Monitoring your debt regularly will help you keep it in the front of your mind. This means that when opportunities for lower interest rates and refinancing present themselves, you will be able to make an informed decision as to whether this would be good for your business, or not.
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