For small businesses looking for capital, the past two years were calm and peaceful times. The lending terrain has never been towering and soaring throughout the post-great recession economy era. Also, loan approval rates have expanded or risen firmly at community banks, institutional lenders, and big banks.
However, in spite of the robust lending landscape, not every company looking for capital can secure it. Big banks still reject a high number of potential borrowers. One of the reasons is a low credit score.
Normally, it is simpler and uncomplicated to borrow money or get capital when times are good, and when you have a good credit score. In this post, we’ll walk you through how you can boost your creditworthiness and land a small business loan. Read on!
Regularly Review Your Business Credit Reports
A credit score of a company is obtained from intricate mathematical calculations designed to foresee the probability of a debtor’s default. Credit rating agencies, like D&B and Equifax, usually assess the following factors:
- Size and structure of the company
- Industry risk
- Timeliness of payments
- Accounts-payables balances
- Credit utilization
- Judgments, liens, bankruptcies against a firms
- Time in business
The principal reason why you need to review your business credit reports frequently is to scan for errors.
Maybe the lender has not erased the black mark of an indebtedness that occurred during the recession era. Or perhaps there was a recline when payments were behind schedule during lean times, and the credit report doesn’t indicate a more recent stable and continuous flow of timely payments. If you notice something wrong with the report, don’t neglect it.
Reach out to the credit rating agency right away to correct the information immediately. Calculating FICO scores are complicated, but, business owners must know and learn how they work, for both personal and business ratings.
Pay Bills On Time
Missed or late payments are harmful and damaging to your credit score. Thus, always ensure to pay bills on time, even if you cannot pay in full amount. Today, many credit card companies offer online payments.
As such, you can arrange automatic payments by providing a bank account number with the credit card companies. Alternatively, you can set up the credit vendor on your system to make payments via your bank.
But the problem here is that if you make payments online, you must ensure that you have enough money in the account. Or else, you’ll have a deficit in the bank account, which cuts down your credit scores.
If, for instance, you can’t repay a full month’s debts, then pay what you can afford before the due date.
Don’t Merge Funds
Despite having a bad personal credit history, you can still establish a good history of paying the business debt. In turn, you can build a track record of creditworthiness. Therefore, it’s essential not to merge personal and business bank accounts, as well as credit cards.
When the accounts are isolated, ensure that business payments are in order. If your business is still in the early stage, an ideal way to exhibit creditworthiness is by opening a business credit card and make full payments on time.
Never open multiple different credit cards to boost available credit. Keep in mind that if you open numerous credit cards, the effect will be adverse. For this reason, it’s more effective and worthwhile to have one card and to repay it in full every month.
Establish Your Business as a Corporation
Incorporating your business provides legitimacy. So, once you have established your business as a corporation, set up the phone, electric, and other utility bills in the company’s name. Also, when you’re applying for a small business loan, banks are likely to finance a business that has an established bill and address in its name.
Prepayment
When possible, prepay bills. Some lenders may give discounts for prepayment. These vendors are willing to trade a discount to assure cash in hand and steer clear from the hassle of running after a delinquent payer.
Both sides benefit in such cases. If you can prepay bills, it’s an opportunity to reduce costs, and thus, boost cash flow. Additionally, vendors whom you repay earlier will serve as credit references. Take advantage of technology to cut costs and simplify operations.
Takeaway
The aim or intent of starting a business is to make money. And a crucial element in generating profits is to reduce the company’s costs. Be sure to monitor your inventory. When business is low, manage employee schedules wisely.
Keep in mind that credit scores are just one determinant that lenders use when examining and evaluating the creditworthiness of a business. Bankers would want to see profitability and revenue growth, its cost structures, and company collateral.
