You have heard that all you have is your word which is a testament of your brand and the value of your ability to be trustworthy. Since 9/11/2001 the intensity of background checks in both the private and public sector has expanded to include credit checks to determine your ability to manage your personal finances. The underlying principle is that if you have challenges managing your personal finances that you may be vulnerable to being persuaded to release business or government confidential information for a fee to relief some of your financial burdens. The background check identifying credit issues generally states the candidate is a high risk and thus the application can be declined solely on that basis of credit risk.
Several people have been denied positions with companies and in government because of their credit issues. The federal government since 9/11 has elevated more security requirements for many of their own employees and for contractors. This means more people may require the need to have a security clearance which can vary from general to top secret. For example, my company has a contract where we provide IT support for a federal agency and it requires the owners of the company to have top secret clearance and without that ability we would have not been able to win the contract despite all of the other stellar credentials and past performance.
Your credit is also important as it relates to the topic discussed “Cash is King” posted on March 2, 2009, as banks will require you to have a solid credit rating as they seek to minimize the risk of a bad loan and it will also impact the kind of interest rate you will receive. The more risk a financial institution has to take the higher the interest rate. Also noted in “Cash is King” is avoiding non-traditional banks that serve as “loan sharks” and offer 100% approval—yes they exist and your effective interest rate will in essence shackle your business as all profits will be eroded by their excessive interest rates that exploit those with poor credit ratings.
So what do you do if you currently have a bad credit rating? Seek to resolve it prior to launching your businesses and perhaps seek to use resources within your family or work with a credit union or your bank to restructure your financial structure to improve your economic health.
It is also important to be current with your state and federal taxes as that will not only impact your credit rating but it will also impact your ability to obtain a security clearance and in some cases some SBA designations such as the 8a certification. The lack of timely tax payments is interpreted as being not responsible and potentially also at risk and potentially at risk of violating the tax laws and thus you could be viewed as not eligible to do business with the government. Please note that failure to comply with tax laws could result in criminal prosecution.
Your credit rating serves as a symbol of your financial management capability and is interpreted to be a good predictor of your fiscal responsibility and accordingly the reliability of your company and you as an owner to deliver quality goods and services consistently throughout a contract period. As a small business owner your personal finances are in concert with your business. Yes this is different for the CEO of Lockheed Martin who ultimately reports to the shareholders. As the owner of a small business you live and breathe on your reputation and your personal finances are a key component of that image. This concludes the fifth installment of the original posting “Getting Started: Doing Business with the Feds” posted on October 22, 2008. We will now follow requests from other small business owners and your requests as posted.