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Business Loans and Fundability: What You Need to Know

Published By Faith Stewart at January 16th, 2020

Business Loans and Fundability: What You Need to Know

What you eat affects your health.  How much you study affects how well you do on a test.  How well you listen affects your understanding. Our actions have consequences.  It’s just a fact. Similarly, the fundability of your business affects your ability to get business loans. 

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Think about it. Getting business loans can be tricky.  How could you possibly get funding if your business isn’t fundable?  You may be thinking to yourself, what is fundability? It’s simple really.  A fundable business is a business that lenders perceive as legitimate and able to pay back their debts.  

Lenders Don’t Give Business Loans to Businesses That Lack Fundability

It’s true.  Lenders are in it for the money.  Therefore, if they see anything that makes them think that lending to your business is a high credit risk, they will not approve business loans.  If they feel like you will not repay the loan, they will fear a bad return on investment. They want their money, plain and simple. If it looks like you won’t pay, you are out of luck. Your business has to be fundable to get business loans. 

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How to Achieve Fundability

Fundability itself is a giant.  Honestly, most business owners equate fundability, and thus the ability to get business loans, with a strong credit score and solid profits.  However, there is so much more to it. In fact, it starts with the way your business is set up. We call that the foundation of fundability. 

Everything related to the foundation of your business can affect your ability to get business loans.  Many of the elements you would never dream make a difference to lenders, actually do. Sometimes the data doesn’t take a direct line to lenders, but weaves its way through the maze of public records, data agencies, and credit reporting agencies until a dozen tiny red flags culminate to set off blaring alarms in a lender’s ears.  

How do you get a fundability?  Start with the foundation. 

Business Loans and Fundability: Building a Fundable Foundation

The elements of a foundation of fundability include the following. 

Contact Information

The first step in setting up a foundation of fundability is to ensure your business has its own phone number, fax number, and address.   Now don’t panic. That doesn’t mean you have to get a separate phone line, or even a separate location.  Truthfully, you can still run your business from your home or on your computer if that is what you want. You do not even have to have a fax machine. Find out how here and here.  

EIN

The next thing you need to do is get an EIN for your business.  If you don’t know, this is an identifying number for your business that works similarly to how your SSN works for you personally.  You can get one for free from the IRS.

Incorporate

This is the most important step in fundability thus far.  Incorporating your business as an LLC, S-corp, or corporation is necessary to be fundable. The reason is, makes your business appear to be legitimate. Additionally, it offers some protection from liability. 

Which option you choose does not matter as much for fundability as it does for what you actually need. The best thing to do is talk to your attorney or a tax professional.  You need to know that you are going to lose all of your time in business and any credit history you may have accumulated. That’s because, when you incorporate, you become a new entity.  You basically have to start over. You’ll also lose any positive payment history you may have accumulated. 

This is why you have to incorporate as soon as possible.  Not only is it necessary for fundability and for building business credit, but time in business is important as well.  The longer you have been in business the more fundable you appear to be. That starts on the date of incorporation, regardless of when you actually started doing business. The best thing to do is to incorporate from day one if that is an option.

Business Bank Account

You have to open a separate, dedicated business bank account.  There are a few reasons for this. First, it will help you keep track of business finances.  It will also help you keep them separate from personal finances for tax purposes. Not only that, but certain types of funding will not be available to you in the future without a business bank account. 

Licenses

For a business to be legitimate it has to have all of the necessary licenses it needs to run.  If it doesn’t, red flags are going to fly up all over the place. Make sure you have all of the licenses necessary to legitimately run your business at the federal, state, and local levels. 

Website

These days, you do not exist if you do not have a website.  Still, having a poorly put together website can be even worse. For many, this is the first they see of your business. If it appears to be unprofessional, it will not bode well for you with consumers or potential lenders. Have a website that is professionally designed.  It’s worth the money it takes to hire a designer. Make sure your email address has the same URL as your website also. Do not use a free email service like Yahoo or Gmail.

Business Loans and Fundability: Business Credit Reports

Your business credit reports, much like your consumer credit reports, detail the credit history of your business.  As a result, they help lenders determine the creditworthiness of your business. 

They come from a number of sources, known as credit reporting agencies, or CRAs.  The main ones are Dun & Bradstreet, Experian, Equifax. Of course, there are others.  They are used less often however. Since you have no way of knowing which one your lender will choose, you need to make sure all of these reports are up to date and accurate. 

Other Business Data Agencies 

In addition to the business credit reporting agencies that directly calculate and issue your credit reports, there are other business data agencies that affect those reports indirectly.  Two examples of this are LexisNexus and The Small Business Finance Exchange. These two agencies gather data from a variety of sources, including public records.  Consequently, they could have access to information relating to automobile accidents and liens, among other things. Unfortunately, you can’t change the information they already have.  What you can do, however, is ensure any further information they have access to going forward is positive.  

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Identification Numbers 

Other than the EIN, there are identifying numbers that go along with your business credit reports.  You need to be aware that these numbers exist. Some are simply assigned by the agency. One, however, you need to take action to get.  That’s the D-U-N-S number.

Dun & Bradstreet is the largest and most commonly used business credit reporting agency.  Every credit file in their database has a D-U-N-S number. To get a D-U-N-S number, you have to apply for one through the D&B website

Business Credit History

Credit history is the largest factor relating to your credit score.  In return, credit score is a huge factor in the fundability of your business.  

Credit history involves several factors.  

  • How many accounts are reporting payments?
  • How long have you had each account? 
  • What type of accounts are they?
  • How much credit are you using on each account versus how much is available?
  • Are you making your payments on these accounts consistently on-time?

The more accounts you have reporting on-time payments, the stronger your credit score will be. 

Business Information

On the surface, it seems obvious that all of your business information should be the same across the board everywhere you use it.  However, when you start changing things up like adding a business phone number and address and incorporating, you may find that some things slip through the cracks. 

Since a ton of loan applications are turned down each year because of fraud concerns, this is a problem.   Maybe your business licenses have your personal address but now you have a business address. You have to change it.  Perhaps some of your credit accounts have a slightly different name or a different phone number listed than what is on your loan application. Do your insurances all have the correct information?  Your business information needs to be consistent across all platforms and records. 

Business Loans and Fundability: Financial Statements

Both your personal and business tax returns need to be in order.  Not only that, but you need to be paying your taxes, both business and personal.  Additionally, have financial statements professionally prepared for your business.  It’s also a good idea to do the same for your personal financials. 

Bureaus

There are several other agencies that hold information related to your personal finances that you need to know about.  Everyone knows about FICO. Your personal FICO score needs to be as strong as possible. It really can affect business fundability and almost all traditional lenders will look at personal credit in addition to business credit. Records from other agencies such as ChexSystems can come into play as well. 

Personal Credit History

Your personal credit score from Experian, Equifax, and Transunion does matter.  You have to have your personal credit in order. It will definitely affect the fundability of your business. The number one way to get a strong personal credit score or improve a weak one is to make payments consistently on time. 

Monitor your personal credit to ensure all the information is correct. 

Business Loans and Fundability: The Application Process

First, consider the timing of the application.  Is your business currently fundable? If not, do some work  to increase fundability before applying for business loans. Next, make sure that your business name, business address, and ownership status are all verifiable.  Lastly, make sure you choose the right business loans for your needs. Choosing the right product to apply for can make all the difference. 

Business Loans and Fundability: How Do You Know Which Type of Lender to Use?

There are so many options it can be hard to figure out which ones will work best for you.  First, you need to decide between traditional and non-traditional lenders. If your business is fundable, a traditional lender will work and offer the best rates and terms.  If not, you may need to start with a non-traditional, private lender.  

Maybe you are somewhere in between.  If so, an SBA loan may be perfect. Traditional lenders work with The Small Business Administration to offer loans through their programs. 

Business Loans: Options that Can Help Build Fundability

If traditional lenders are not an option, you can look at private lenders.  You know business credit is a large piece of fundability. If your business credit is lacking when you are looking for business loans, it can be helpful to find loans that can help build your business credit and thus, your fundability.  Some private lenders do this by reporting your on-time payments to business credit reporting agencies. Here are few. 

Business Loans from Fundation

Fundation offers an automated process that is super-fast. Originally, they only had invoice financing.  Later, they added the line of credit service. Repayments happen automatically. They draft them electronically, and this occurs on a weekly basis.  One thing to remember is that you could have a repayment as high as 5 to 7% of the amount you have drawn currently, as the repayment period is relatively short.  

You can get loans for as little as $100 and as high as up to $100,000, but the max initial draw is $50,000.   They do have some products that go up to $500,000. Though there is no minimum credit score requirement, they do require at least 3 months in business, $50,000 or more in annual revenue, and a business checking account with a minimum balance of $500.

Fundation reports to Dun & Bradstreet, Equifax SBFE, PayNet, and Experian, making them a great option if you are looking to increase fundability by building business credit. 

BlueVine

As you find with many alternative small business loans, lenders often offer options more similar to invoice factoring and lines of credit.  The reason is, these present less risk than straight term loans. This is true of BlueVine as well as Fundbox.  

The minimum loan amount available from BlueVine is $5,000 and the maximum is $100,000. Annual revenue must be $120,000 or more and the borrower must be in business for at least 6 months. Personal credit score has to be 600 or above. Also, BlueVine does not offer a line of credit in all states.  You can find out more in our review here.

They report to Experian.  They are one of the few invoice factoring companies that will report to the business credit bureaus. 

Business Loans from OnDeck

With OnDeck, applying for financing is quick and easy. Apply online, and you will receive your decision once application processing is complete. Loan funds will go directly to your bank account. The minimum loan amount is $5,000 and the maximum is $500,000.

There is a personal credit score requirement of 600 or more.  Also, you must be in business for at least one year. There is an annual revenue requirement of at least $100,000 as well. In addition, there can be no bankruptcy on file in the past 2 years and no unresolved liens or judgements. 

OnDeck reports to the standard business credit bureaus.

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The Business Backer

These guys offer a product they call FlexFund Line of Credit.  Funds range in amounts from $5,000 to $240,000.  Draws can be repaid on either a daily or weekly basis.

They report to Dun & Bradstreet and Equifax.

Business Loans and Fundability: Now You Know

Of course, it would be impossible to list all of the different types of lenders and loans available to your business.  These are a great starting point however. Start with taking a close look at your fundability. Apply for loans that you can get approved for based on that.  Then, if you need to work on your fundability, the sooner the better. The longer you wait, the more tangles you will have to work through.

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