Most businesses will need help in financing at one point or another. Small to medium businesses, in particular, need to borrow money either for starting up or for expanding. However, applying for business credit can be a tiresome, frustrating process and small businesses are often rejected. This is because lenders are usually not confident that small businesses will be able to repay the loan. Thus, it is very important to make your business credit application stand out by proving that your business is creditworthy especially if you’re a small to medium-sized business owner.
Include A Solid Business Plan
Having a clear, solid business plan is vital when applying for business credit. Your business plan provides lenders with a summary of what your company is—its products, services, goals, team, and financials. It will show how your business earns money and how that revenue will be used for expansion and growth. Accordingly, it helps lenders predict whether your business is capable of repaying the loan or not.
To make sure that your business plan proves that your business is worth the credit risk, include a section outlining similar companies in your area and what makes your business different from theirs. Also, include a projected income statement and what you plan to do with the money from the loan.
Outline The Financials
The ability of your company to repay a line of credit or loan can be determined by its cash flow. Provide current and accurate financial statements that clearly outline the inflow and outflow of cash in your business. Make sure that you have a positive cash flow history to make your business credit application stand out and to encourage lenders to finance your company.
Check Your Credit Scores
Both your personal and business credit scores will be taken into account when you apply for business credit. Although alternative lenders consider credit scores of at least 550, scores above 640 are usually preferred. And if your company has multiple owners, each owner’s personal credit score will be taken into account. Your credit score helps lenders evaluate your credibility in repaying the loan. The business credit score, on the other hand, outlines the earnings, current assets, and other financials of your business. A poor business credit score can decrease the creditworthiness of your business and derail your business credit application. Thus, it would be better to check both your personal and business credit scores beforehand and try to increase it by, perhaps, paying off outstanding debt.
There are alternative lenders, however, such as Business Credit and Capital that can help finance small to medium-sized businesses that lack sufficient credit even without collateral. Consider cleaning up your business credit application for alternative lenders like Business Credit and Capital if your credit score is less than perfect.
Provide Trade References
Trade references can indicate your company’s credibility in terms of repaying a loan or line of credit. Having three to four strong trade references can really make your business credit application stand out since it indicates the financial health and management of your company. Include work history, recommendation letters, and if applicable, financial institutions you’ve transacted with in the past. This way, lenders will have more confidence in financing your business.
There is no guarantee that your business credit application will be approved despite your best efforts. If you do get rejected, ask what factors contributed to their decision and make the necessary improvements for future applications.