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The Importance of Credit Score — One Client's $11,340 Lesson

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in The Business of Business Finance

This morning’s Wall Street Journal's story on free credit score reporting and it got me thinking about how most small business owners have multiple issues they have to manage on a daily basis.  Most of these tasks have an immediate impact on profits or sales. 

Here’s one that impacts both, but is not noticeable to most owners until it becomes expensive - Your personal credit score.  For business owners there are other levels of complexity which I’ll develop in a future post.  Today I’ll just illustrate the financial importance of your credit score.

Your FICO score not only impacts the availability of capital for a small business, it has direct impact on your profits as well.  Because this is an abstract concept for many business owners we’ll specific look at the financial rewards of strong personal and business credit.

Last week I helped a business owner secure an equipment lease for a new machine necessary to expand into a more profitable business segment.  His credit score of 620 provided a bit of a challenge, but we were successful with his equipment financing.  He elected a 5 year lease with a monthly payment of $1,025.  He was thrilled because his return on investment was significant.

It got me thinking…

The exact same business owner with a 720 FICO score would have been offered a lease with a monthly payment of $836 per month.  Over the 5 years his equipment lease, he would have saved $11,340, his monthly cash flow would have been improved by $189 and his ROI would have been even more impressive.

I realize there are many issues that demand your attention each day and it is easy to ignore issues that are not burning.  However, maintaining your credit score is relatively easy and will have an important impact on the profitability of your business. 

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