Credit history – a mirror of your business

It’s no secret that credit history is one of the key factors in determining whether a financing institution will lend a company. However, how many small and medium-sized businesses in Lithuania have work obligation schedules that check their creditworthiness every few months?

Dr. Gerda, Head of Sales and Customer Services at Good Finance, points out that credit history can also be a tool that will allow the company to earn points and a hurdle that will take time and motivation to overcome.

Knows but doesn’t know

money

Your company’s credit history is not only important on the eve of the day you are scheduled to meet at the bank. Most business people say this is a matter of course, but the results of the surveys cast doubt on it.

For example, a recent survey of ComRes, a research and communications company in the UK, found that only 13% of their executives know what components make up a company’s credit history.

Executives also revealed that more than half (59%) of companies have never checked their creditworthiness, while 56% of those who have inquired at least once have not done so in the last six months.

The facts alone

The facts alone

If we sometimes do business plans and market forecasts based not only on economic trends but also on sentiment, it is important to understand that when it comes to credit history, it is all about facts: what happened, what decisions you made, and how you kept your promises.

Dr. JurkonienÄ— emphasizes that the company’s credit history is like a mirror, which allows to see the financial habits of each company and assess its ability to deal with them.

“Credit history consists of two components: information about financial liabilities (company loans, leasing agreements, etc.) and information about payment history. The second part is no less important and shows whether the company is properly fulfilling and fulfilling its financial and other obligations – payments for loans, leasing, bills for services and so on.

A company’s credit report consists of credit rating, financial ratios, credit history, information about the manager, the board, the supervisory board, public procurement, liens and more. The credit report compiled by the credit bureau contains data collected from banks, leasing companies, other private institutions and public registers, ”explains dr. Jurkoniene.

Serious argument

Serious argument

Credit history is a tool for everyday business relationships, starting with deciding whether to start a collaboration at all, what grace terms and limits apply.

“Good credit history is an argument in negotiating business loan terms, paying off goods over time, and seeking higher credit lines from suppliers,” the expert says.

Banks and other financial institutions also take credit history into account when assessing potential business customers, which becomes an important piece of evidence for a company’s financial health.

“Financial institutions tend to trust those businesses that have a positive credit history. Such companies are usually offered more favorable financing terms, such as lower margins or lower collateral. When assessing a company’s credit history, the bank considers whether overdue debts are one-off or recurring, their duration, the impact they may have on the future performance of the company, or whether there are no legal proceedings for overdue debts. Jurkoniene.

What matters is what you do now

What matters is what you do now

And what if you have failed to avoid mistakes in the past or to make ill-advised decisions that have damaged your financial image? Credit history cannot be deleted, and small and medium-sized businesses must keep an eye on it.

“Financial liabilities do not deteriorate credit history by themselves if they are adequate for income and payments are made on time. However, poor credit history can really put a strain on future development, partnership or business plans in general. Poor credit history cannot be deleted or repaired cosmetically – it is an objective biography of your business that reflects what has happened.

However, this does not mean that the past determines the future – credit history can be enriched with as many positive actions as possible. If your financial health is limping, the key is to cover your current delays. Credit history not only reflects overdue credit payments, but also delays in paying supplier bills, leasing fees, bills for communications, internet, electricity, utilities or other services and goods.

Therefore, having unpaid debts should be covered as soon as possible. You should also evaluate your financial ability objectively and, if necessary, reduce your borrowing appetite. It is especially important not to cover existing credit with new loans, ”he advises. p Jurkoniene.

Tax deduction of a loan

The legislator provides for tax provisions that make it possible to reduce the burden of a mortgage loan. There is a difference between the gross burden of a mortgage loan and the net amount that you will ultimately spend on it. It is important to bear in mind that you must meet the conditions to be eligible for the deduction.

Note: The deduction does not mean that you pay less interest or repayment! You pay less tax, so the net costs are lower.

 

Changes as of January 1, 2005

bank loan

Since January 1, 2005, the rules regarding the tax deduction have been greatly simplified. Old loans and refinancing will in many cases still fall under the old rules. Under the new scheme, both the interest, the capital repayments and any debt balance premiums fall under the tax deduction. There is a maximum amount of $ 1,500 per person per year. The amount is indexed annually and if there are three or more dependent children, it is possible to have the maximum amount to be deducted increased. In this way the government makes it easier to purchase a home.

 

Conditions for deduction

loan deduction

In order to be eligible for the tax deduction of the costs for the loan, you must meet two conditions. It must first of all be a mortgage loan that is taken out with a European institution. The term of the loan must be at least 10 years, although this will usually not be a problem with a mortgage loan. In addition, the loan must have been taken out to acquire a home or be able to retain it and this must be the only home of the taxpayer on 31 December of the year in which the loan was taken out.

 

Debt balance insurance

Debt balance insurance

In the case of a balance insurance, the premiums can generally also be deducted. However, keep in mind that additional conditions are set with regard to this insurance. That is something your mortgage lender can tell you more about.

The tax deduction possibilities only apply to mortgage loans, since other loans (such as consumer loans) do not meet the first condition. In addition, keep in mind that you need to have the amount available monthly to pay your interest and any repayment and you will only benefit when paying the taxes.