As a business owner, you’ve probably thought about going to the bank for some extra funding. Even today when many online businesses can be started completely free of charge, entrepreneurs find that they need some extra capital to invest in marketing, an online presence, customer service, product presentation and more to help their business get off the ground and start turning over a decent profit. This is exactly what business loans are designed for. However, if you have a poor personal credit rating, your chances of being accepted for business funding from your bank are likely to be very slim.
Whether you missed some payments on a credit card years ago, are currently repaying a large line of credit such as a mortgage, or have a lot of different credit products on the go, this can all go against you when it comes to applying for a business loan. Lenders will take the information on your credit file into account to determine the level of risk that they’re putting themselves in by trusting you to repay their money. With that in mind, you may want to make some improvements to your credit score to boost your chances of getting the funding that your business needs. But, how do you do that? Let’s find out.
Tip #1. Don’t Borrow Any More:
It can be especially tempting to borrow as much money as you can when you’re in the early stages of running a business that isn’t bringing in a lot of profit. Many new entrepreneurs will need to adjust to living on a low income during the early days as their business gets off the ground, and when you have expenses to pay such as rent and bills, getting by can be a very stressful experience. However, borrowing more money will only make your credit score worse if it is already poor. Wherever possible, it’s a much better idea to borrow money from friends or family instead – this won’t be recorded on your credit file, therefore it won’t be affected in any way, no matter how much you borrow. If this isn’t possible, you may even want to think about turning to crowdfunding to help make your life as a new entrepreneur a little easier.
Tip #2. Pay Off Whatever You Can:
The more debts that you can completely clear, the better your credit score will become. If you have any smaller debts, such as low-limit credit cards, low-payment hire purchase agreements, or short-term loans, then it’s definitely worth trying to pay them off in full, or at least clearing as much of the balance as you can afford to at once. This is far more effective than simply paying the minimum required payments as it shows lenders that you are proactively trying to reduce your overall level of debt, even if you’re only starting with the small ones. In addition, paying off debts in full will also reduce the overall amount of interest that you pay on the money borrowed. Some lenders will even offer you a discount when you clear your debt in full, so be sure to contact them and inquire about this beforehand.
Tip #3. Keep Credit Card Balances Low:
There are many great benefits to having a credit card – not only does it provide you with some extra funds to use in the case of a financial emergency, but many credit card providers offer a number of great perks for their customers, for example the opportunity to collect air miles or enjoy exclusive discounts in a number of stores. However, spending too much on your credit cards can create a serious problem with your credit score. If your cards are all maxed out or very close to their limit, this will send a message to any new lenders that you are relying heavily on credit; they will then assume that you’re not in a great position to be taking on any extra debt, at least until your credit cards are cleared.
The best way to ensure that you don’t run into problems with your credit card balances is to try and keep each card under 50% of the total limit. For example, if you have a limit of $1,000, don’t spend any more than $500 before you make a repayment. If you can pay off the whole balance in full each month, that’s even better!
Tip #4. Avoid Short-Term or Payday Loans
If your credit rating is poor, then it can be tempting to turn to short-term, or ‘payday’ loans since these often have lower requirements and higher rates of acceptance than credit from your bank, for example. However, the problem with many of these types of loans is that they tend to have huge interest rates; this can mean that you end up paying back substantially more than you borrowed. Many people who take out payday or short-term loans often find themselves needing to take out another one simply to pay the first one back! Find more financial information and tips for managing loans at https://creditrepaircompanies.com/sky-blue-credit-repair/.
Tip #5. Resolve any Discrepancies:
Before applying for any business loans or credit, it’s a good idea to know exactly what’s going on with your credit score – this will put you in the best position to improve it. However, sometimes individuals with a poor credit score find that there are discrepancies or mistakes on their file which is affecting their overall rating. For example, you may be listed as having made a late payment, when you are sure that it was made on time. For this reason, it’s important to use a reputable credit report checking tool such as Equifax; this will allow you to break down your score and better understand what is causing problems. Check your credit report carefully for anything that doesn’t seem right; you can take any issues up with your credit provider. Hopefully, you won’t find any mistakes, however, be aware that they can happen.
Entrepreneurs with a poor credit rating can often struggle to get a business loan. Don’t let this happen to you – take these simple steps to rebuilding your credit score and improving your chance of success.
