You can have a good credit score and still have trouble getting a business loan. If you own a small business, it’s important to understand how the world of business credit works so you can make sure your company is getting the financing it needs.
Correct Errors On Your Report
It’s important to check your credit report for errors because a mistake on your report can cause you to be denied credit. If you find an error, correct it. You can correct errors by contacting the three major credit reporting agencies: Equifax, Experian, and TransUnion. Each of these companies has its own methods for correcting errors in its reports; make sure you contact the right one based on which agency generated the report in question.
Identify All Business Debt
In order to receive any kind of financing, it’s important that you know exactly how much debt your business has. This will ensure that you understand the full picture when it comes to lending options for small businesses and their impact on your credit profile. As per the experts at Lantern by SoFi, “Because the risk for lenders is lower, SBA loans tend to have favorable interest rates and terms. However, this can also make them highly competitive.”
List all of your debts on a single page. The best way to do this is by keeping track of all current and past liabilities in one place—on separate sheets of paper or in a spreadsheet document, for example.
Collect Positive Trade References
Ask for references from customers. If a customer has done business with you and has had a positive experience, they may be more than happy to provide you with their contact info. This can be especially useful if this customer is in the same industry as your business or could be considered a competitor.
You can also ask for references from vendors, suppliers, employees and contractors. The same applies here: People who work closely with the ones who want to do business with you are likely willing to put in a good word for you.
References can also be from advisors like lawyers and accountants who’ve worked on your behalf before—or even partners that have helped co-found your company!
Lower Your Debt To Credit Ratio
When you are applying for a loan or credit card, one of the first things that a lender or creditor will look at is your debt-to-credit ratio. This is calculated by taking all of the debt on your credit report and dividing it by how much available credit you have.
Your goal should always be to keep this number below 30% because having a large amount of available credit can make it appear like you are over-leveraging yourself. If possible, aim for less than 20%. You’ll also want to pay off any balances on your cards as much as possible since carrying high balances can negatively affect your score, even if they aren’t affecting your overall percentage of available credit.
There are several ways you can improve your business credit, but it’s important to understand that no two businesses are alike. You may need a different strategy than someone else. The best way to know what will work for you is by starting with our tips above and then testing them out in the real world.
