The Ins and Outs of Business Credit
Without good credit, your chances of growing your business are significantly reduced. Here are some pointers to help you keep your credit on track.
Successfully acquiring a loan often exceeds simply having a well thought out and strategic business plan. Given the economic climate over the last several years, lenders have become increasingly wary as to whom they approve for loans. Good credit has always been perceived as a pivotal factor when applying for loans. Although the success of your business somewhat hinges on good credit, you shouldn’t stop there. There are many ways to make your business as appealing to lenders as possible. Due to current marketplace conditions, banks are seeing numerable volatile portfolios. The businesses that are generally successful at receiving funding are those that have a recognized history of repaying their loans while making profits.
Learn how to successfully identify and avoid predatory small business lenders, here.
Why Business Credit is so Imperative to Small Businesses
Generally, good business credit is considered crucial; however, to the small business owner, it should be considered imperative. What separates small businesses from larger ones is marketplace uncertainty. It is not uncommon for small businesses to see very prosperous months followed by lagging ones. For the slower months, businesses need capital in order to meet operating costs. With a healthy business credit, one can access capital and weather these marketplace uncertainties.
How to Properly Establish and Maintain Healthy Business Credit
This is an all-encompassing credit checklist. Every small business owner and entrepreneur should be well versed in the five ins and outs of good credit.
Capacity quite simply refers to your (and your company’s) ability to repay your loans without disregarding deadlines. As we all know, financial history follows us around without fail. This being said, if you have an immaculate repayment record you have already done a great job at putting yourself and your company in a favourable position to receive funds.
As an entrepreneur, it is always important to have a plan. Lenders will not take a risk on your business based exclusively on projections. Providing a lender with historical information, such as repayment records, offers something more concrete and will work in your favour.
When approaching a lender for a loan do not undervalue how your character, skill sets, and general conduct will influence your success in receiving a loan. For example, most lenders will want to make sure you are proficient in the commerce you and your business operate in.
It is not uncommon for someone with a strong portfolio to be declined for a loan based on the premise that they don’t have enough of a professional history in a certain industry. Having experience in an industry, along with strong references, should never be underestimated. These two factors are critical to the process of being approved for a loan.
It is also important to keep in mind that financial conduct in your personal life will be considered a reflection of your professional conduct. Lenders will often look at your personal credit. This being said; treat your personal credit history as you would that of your business (using a personal credit card for business purchases – is it a good idea?). If you have a poor credit history in your personal life, lenders will be skeptical, fearing a similar outcome in your professional life. Settling any personal debts before approaching a new lender for a loan should be considered imperative.
Don’t forget to invest in your business and show you’ve put your money where your mouth is. If you have invested in your own business, it reflects favourably in the eyes of lenders, by showing your vested interest in your own business. Ideally, you should be able to provide a lender with financial records indicating your own personal investments, along with your experience and success in that industry.
Having collateral is a critical condition that you must prepare for if you wish to acquire a loan and build a healthy credit line. What constitutes collateral is very broad. It can be anything from real estate to a company’s purchase orders.
Although that which could be considered collateral is quite broad if it is not considered worthwhile to a lender it will not be considered. From a lenders’ perspective, property is the most desirable form of collateral, your home for example. It’s important to note that considering the current real estate market, a considerable amount of real estate collateral could be lost in equity. If you fall short of collateral assets that would be considered worthwhile to a lender, other forms of collateral would be RRSP’s or stock portfolios.
Find a lender that complements your business interests. It is always important to see loans through the lens of a lender. Do some research and specifically target certain lenders. Each lender is different and they often have certain industries to which they prefer to offer loans.
Be careful what lender you choose. Find one that wants to work with you. Once you have chosen, cater your portfolio to the lender’s loan criteria. Although banks can actually be quite selective, there are often similarities between the types of loan portfolios they will accept.
The Ins and Outs to Increasing Your Credit
An important and often overlooked component of assuring good credit is an administrative one. It is important to make sure all credit ranking companies have the correct information in their files concerning your firm. An incorrectly labeled company name or an unrecorded repayment could completely compromise your chances of securing a loan. Do not overlook administrative details.
If you are struggling to secure a loan or have simply been rejected for funding, there are alternate routes that can also be explored, such as peer-to-peer lending. There are many peer-to-peer lending sites that connect those who want to invest money with those who want to borrow money. This financing route will not enable you to finance a huge company, but for the small business owner, it is enough to keep your business headed in the right direction.
Need more information on small business borrowing? Read this article.