Published By Janet Gershen-Siegel at May 17th, 2021
Can you improve your chances of getting a loan from small business lenders?
Of course you know your business needs money. But business lending doesn’t just come from banks. Still, working to make your business more attractive to lending institutions isn’t just an end unto itself. It will also help your company also become more attractive to nontraditional lenders. It may even help make your business more attractive to prospects. There are factors which are within your control and you can help your business right now.
Once you understand what banks and lenders are looking for, you can address their concerns directly. Many of these are actions you only need to take one time, and many of them will also help you to convince prospects to buy from you, thereby helping you recoup any incurred costs.
Fundability is the ability of your business to get funding. When lenders consider funding your business, does it appear to them to be a good idea to make the loan? What do they look at to make that determination? Fundability means recognizing what’s important to lenders, and then giving them what they want.
You probably already know that a great business credit score is important. But many of the aspects necessary for a strong business credit score work for fundability as well. A potential creditor or lender needs to see your business is legitimate and profitable. Many loan applications get denials due to fraud concerns. Others, simply because something didn’t match up and threw up a red flag.
A business must be set up to appear to be a fundable entity separate from you, the owner. The first step is to ensure your business has its own phone number and address. That doesn’t mean you must get a separate phone line, or even a separate location. You can still run your business from your house or on your computer.
You can get a business phone number that will work over the internet instead of phone lines. This is called a VoIP (voice over internet protocol). The phone number will forward to any phone you want it too so you can use your personal cell phone or landline if you want. Whenever someone calls your business number it will ring straight to you.
Use a virtual office for a business address. A virtual office is a business that offers a physical address for a fee. They sometimes they even offer mail service and live receptionist services. There are some that offer meeting spaces for those times you may need to meet a client or customer in person.
But not every vendor will accept a virtual address.
A business website can affect your ability to get funding. But a poorly put together website that appears unprofessional will not help you with customers or potential lenders. Spend the time and money necessary to ensure your website is professionally designed and works well.
Along these same lines, your business needs a dedicated business email address. Make sure it has the same URL as your website. Don’t use a free service like Yahoo or Gmail.
All your business information should be the same everywhere you use it. But when you start changing things up like adding a business phone number and address or incorporating, you may find that some things slip through the cracks. This is a problem because many loan applications fail each year due to fraud concerns simply because things do not match up.
Consider all the places where this information could be.
Credit providers won’t stop to consider all the ways you could list your business. If you write Incorporated in one place, and Inc. in another, it can be enough to trigger a denial. Consistent and congruent information makes it fast and easy for credit providers and lenders to find your business and its payment history.
Consider all the places where your business has a listing. It’s your website, credit applications, even places like Yelp and Google Reviews. Take the time to keep records of all of these places, so Google your business often. Claim your profile on review sites to better control how your business name, address, and other particulars are presented. Copy and paste your information. Don’t chance an error with typing it out. This also means updating info whenever it changes.
An EIN is an identifying number for your business that works like how your SSN works for you personally. Many sole proprietorships and partnership use their SSN for their business. But it can cause your personal and business credit to get mixed up. When you are looking to increase fundability, you need to apply for and use an EIN. Get one for free from the IRS.
A lot of businesses start off as sole proprietorships. But there’s no separation between the owner and the business with this setup. Partnerships are another entity where the ownership and the business are more intimately connected. With either entity, any other efforts at separating business and personal credit could be all for naught.
A corporate structure truly separates business and personal credit and finances. This is because a corporation is considered to be its own entity. Should you choose a C-corporation, an S-corporation, or a limited liability corporation? That’s up to you to decide. We highly recommend working with a corporate lawyer or an accountant to determine what’s best for your particular situation.
When you incorporate, you become a new entity. Hence if you haven’t incorporated ASAP, you lose the time in business that you have and must start over. You also lose any positive payment history you may have accumulated.
Hence you must incorporate as soon as possible. It’s not just necessary for fundability and for building business credit. Time in business is also vital. The longer you have been in business the more fundable you appear. That starts on the date of incorporation. This is regardless of when you actually started doing business.
There are business owners who pay for business expenses with personal credit cards and checks. But a business’s credit file is only supposed to reflect the financial performance of the company itself. Using personal payment methods can muddy the waters. Resist the temptation to pay for any business expenses with personal credit or checks.
Your business must stand or fall on its own financially. Once you get credit from starter vendors or any other business or lender, use it on your business, and stop floating what are essentially interest-free loans to your business.
Another way to assure your finances get and stay separate is separate bank accounts. Often, a starter vendor will want for your business to have its own bank account anyway. While you’re at it, open a merchant account so you can take credit cards from your customers. Customers will spend more if they can pay with plastic.
Fundability means being a legitimate business. For a business to be legitimate it must have all of the necessary licenses it needs to run. If it doesn’t, red flags will fly up all over the place. Do research to ensure you have all the licenses necessary to legitimately run your business at the federal, state, and local levels. Being properly licensed can help assure skittish prospects that you and your business are legit.
In addition to the EIN, there are identifying numbers that go along with your business credit reports. Some are assigned by the agency, like the Experian BIN. 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 must apply for one through the D&B website.
The key to keeping records consistent is to monitor your reports frequently. Monitoring your credit means you know what’s going on with it. You can pounce on errors quickly. Yes, the business CRAs make them, but they are all committed to accuracy and want to correct those mistakes ASAP.
When it comes to business credit reports, you can monitor through the reporting agencies directly. But that’s expensive! Or you can save 90% and monitor through Credit Suite.
Your credit history has a lot to do with your credit score. It is a huge factor in the fundability of your business. The more accounts you have reporting on-time payments, the stronger your credit score will be.
Your credit history consists of a number of things including:
Personal credit scores come from several metrics. But business credit mainly depends on one thing, how early or late you pay your credit bills. Paying late will damage your business credit scores at all three of the major CRAs.
Here are a few suggestions on how to improve your company’s payment history:
Business credit is credit in the name of the business, not its owner(s). It’s a measure of how well your business (not you) pays its bills. Properly created business credit separates personal and business credit completely. So if your business defaults on payments or goes bankrupt, it protects your personal assets.
Good business credit is the way to qualify for funding without good personal credit, collateral, cash, or a guarantor. Here are some tips on building business credit to improve your chances for financing from small business lenders.
While many vendors and credit providers don’t report all payment experiences, they have no problem reporting late and missing payments. So, seek out and mainly (if not 100%) work with vendors which report. These are called starter vendors. Their requirements change all the time. Fortunately, we know which vendors report, and we keep up with their ever-changing requirements.
Asking for too many lines of credit at once signals that you’re desperate and could be overextending yourself. Building a successful business takes time. In the same way, so does building a good business credit profile. As a result, spread your applications for additional lines of credit over time.
Applying for a lot of credit at once also means you’ll have a number of brand-new accounts, which will bring the average age down. Not using your credit can result in credit providers closing inactive accounts. This, too, brings the average age down.
Business credit isn’t going to be built if you get cards and then forget about them and never use them. The business credit reporting agencies are calculating your scores based on the credit you use. Using your credit, and paying on time, is positive fodder from business credit scores and reports. You can’t control the passage of time, but you can control card usage and not apply for every credit card you see all at once.
Do you need a traditional loan or a line of credit? Would a working capital loan or expansion loan work best for your needs? Choosing the right product to apply for can make all the difference. Don’t waste yours and the lender’s time by not considering the best loan product to apply for.
There are steps you can take to make it more likely your business will get a loan. These steps may also help your business become more appealing to prospects. They also help with building business credit. And applying for the right loan product will also help improve your chances of getting a business loan from small business lenders.