3 Things You Need to Do Before Applying for Business Credit
Few things are as humbling as asking for money—even if it is in the form of a business loan. But from humble beginnings, small businesses can grow, especially when a loan request is handled properly. Here are three things you can do beforehand to make sure your request is taken seriously when applying for business credit.
Make Sure Your Credit History Works in Your Favor
You don’t have to have perfect credit to get a business loan, but you do have to show that your business credit history is trending positively. This means having a score of close to 700 or above and no red flags, like missed payments.
If you do have some ‘blemishes’ in your past, get rid of them by paying down high balances, making on-time payments and putting every effort into cleaning things up. If you can show a lender you’ve done well for six months or more, your chances of getting a loan will improve.
Note: If your business is really small, lenders may look at your personal credit history and score here are some tips and tricks on increasing your business credit ranking.
Get Your Cash Flowing in a Positive Direction
Without consistent, positive cash coming into your business, few banks will trust that you’ll have the money to pay them back. You need to prove that your business is capable of generating the influx of cash to make your payments on time and cover expenses—without skinning your teeth.
It may require you to adopt a leaner business model or stiffen payment policies with your customers. You may also benefit from having your cash flow analyzed to see where positive changes can be made. The more you do to create consistent, positive cash flow, the more likely you’ll get approved.
Think Like a Business Banker
Would you give your business a loan if you were the banker? Most likely it would depend on several factors in addition to those mentioned earlier. In fact, you’d probably want to see a business plan and know what you have for collateral. You’d want to see projections and an overview of the market your business serves.
If you run a business with razor thin margins or unusual cycles, like a restaurant or seasonal business, you’d want to know what types of contingencies you have during slow periods. The more you consider your request from the banker’s point of view, the better you’ll be prepared. Keeping preparation in mind, here is a list of documents that are typically required for any small business loan application.
Extra Tip: Shop Around… and Around
Not all banks are the same, and it’s up to you to find the ones most likely to help you out. If the big banks dismiss you as too small to lend to, try smaller community banks. Look for lenders who specialize in loans from the Small Business Administration (SBA). They’re in business to help businesses like yours get the loans you need to succeed.
For more options on getting funds for your small business, read, How to Find the Right Loan for Your Small Business.
Every small business considers a loan at some point. By embracing the points shared here, you can increase your chances of being considered a good risk.