Getting a business credit line from a bank isn’t the easiest thing to do; especially if you’re a start-up. Seed money, working capital, and other forms of loans, require that you pass a series of credit related checks.
So what do banks look for and what can you expect? We’re going to tell you.
High on the list of establishing business credit is, of course, your personal credit history. No surprise there. If you’re a start-up, lenders will be looking at your personal credit. Banks won’t want to see late payments, missed payments, liens or a bankruptcy. The negative impact of these and other credit deficiencies could have a substantial impact on your loan request.
A late payment, here or there, won’t kill your chances, but if there’s a pattern of late payments, it very well could. If, however, you have a good explanation as to why these credit deficiencies exist, your chances of approval could increase. It’s probably a good idea to check your personal credit reports to clear up any possible discrepancies that could adversely affect your application. If your business is a start up, you may need to use your personal credit in the beginning, and while you’re doing that you can begin to establish your business credit profile as well.
But let’s say you’re already in business, and haven’t established a business credit history yet. Now it’s your business’ credit that comes into play. Dun and Bradstreet, Experian, and Equifax are often the sources the banks will turn to when reviewing your business credit reports, including history, public record information, company background and supplier payment history. Whether you’ve been in business one day or 10 years, if you haven’t established a business credit profile, then your business is still at Day One.
But it’s never too late to get started. If you’re a start-up, the bank is going to look for some solid financial projections. Remember the projections you use, are based on the assumption that you’re going to get the financing needed. Work with a financial specialist to put your numbers together. The money you spend on a financial consultant will be well worth it, and the bank will appreciate your professionalism.
If you’re already in business, the same applies. But now you have real figures to present to the bank. Assuming that they’re good, that should be it, right? Wrong. The bank is going to want to see what you want the loan for. Working capital, expansion, new equipment are always good. A loan to take your top producers for a rewards week in the Caribbean is not.
Collateral doesn’t have to come into play when you apply for business credit. Why is this? Because the banks lend business lines of credit without it. They’re called unsecured credit cards and unsecured lines of credit. These are great avenues for any business that perhaps doesn’t have the business collateral.
It’s never a good idea to use personal collateral to fund your business. The banks will generally lend up to $ 50,000 without collateral on these types of loans. The banks do require a strong business credit profile and sometimes a good personal credit profile and these can be easily established and obtained. Lenders know that there’s a strong correlation between your commitment to your business and the loan being repaid.
In the end, getting business credit is all about the figures. Do they or don’t they work. If they do, and if you present your case in a straightforward manner, you’ll put your business in the best light, and in all probability, get the loan. Always remember that the bank wants to lend you money. It’s up to you to show that you can repay the loan.