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How a hospitality business can improve its credit rating

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Don't overlook your credit profile if you want to secure finance or negotiate new supplier contacts, advises Experian
Don't overlook your credit profile if you want to secure finance or negotiate new supplier contacts, advises Experian
Simon Streat, managing director of SME, Experian UK&I, explains how restaurant, hotel and pub owners can improve their credit ratings to help give business a boost and make it easier to expand.

For many small businesses in the UK leisure sector, hopes are high for a lucrative summer of tourism in 2012, following many months of tough economic conditions and financial uncertainty.

However, all-too-often when making their business plans for the year, firms will overlook the issue of their credit profile, despite the fact that it could affect their ability to secure financing, win new customers or negotiate supplier contracts.

For example, when looking at suppliers, small firms need to continually ensure they have the best possible deals on essentials such as utilities, telephone and banking, yet if their credit score is low, this may be easier said than done.

Firms with weak credit ratings will find that suppliers are sceptical of their ability to pay their bills, and thus either refuse to do business with them or enforce stringent payment terms. In the final quarter of 2011, Experian research showed the hotels and leisure sector paid its bills more than 34 days late on average. Given such endemic delays, SMEs are now subject to particular scrutiny in this area.

More critically, firms may struggle to attract new sources of finance if they don’t have a high credit score, but many are not even aware that there is a business credit score affecting their access to credit and services. Privately owned SMEs do not always take the time to register pertinent company information with business directories or file full accounts with Companies House, and this lack of information will translate to a greater level of risk in the eyes of potential lenders.

The more information that is available about a business, the better position it will be in with regards to its credit status. Newly formed businesses in particular need to ensure they are properly registered with a directory such as Thomson or Yell from the off, as well as approaching credit reference agencies proactively to seek advice on how to increase their score.

Furthermore, credit ratings typically start with assessing the directors themselves and their history of previous business ventures. If you’re starting up for the first time, it may be advisable to find a partnering director, especially someone that has previously experienced start-up success. Experian analysis has shown that businesses started by two people or more have a greater likelihood of survival than those businesses with one director. Similarly, if you’re an established company and one of your directors decides to leave the firm, bear in mind that this may also have an impact on your credit score.

Ultimately, at any stage during a firm’s development, the more information there is in the public domain about a business or provided to credit reference agencies, the greater the likelihood of a credit rating that accurately reflects the circumstances of the business.

For this reason credit profile proactivity could make a big difference in ensuring a business places itself on the best possible footing and is able to reap the rewards of the summer’s prospective tourism boom.

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