Since 2008 banks have been more aware of protecting their interests and as such have created tighter rules around giving credit. This may have resulted in your previously good credit score now not being enough for a start-up loan. Or you may have bad credit – either personal or business – and that is why you are unable to access lending for expansion or capital outlay.
A large number of borrowers with bad credit are turned down by the main banks. When they are accepted they are often given unfavourable terms, higher interest rates or shorter periods of repayment.
A strong business credit profile doesn’t just help you secure a loan; it’s also important for attracting new business. Because your business credit profile is more accessible than a personal one, poor finances will affect your credibility.
Of course, it is sometimes possible to get a business loan even with a poor credit history. But it is better to take a few simple steps towards a better score and therefore you can open routes of finance up that will be more beneficial to your company. Cashflow is the biggest killer for start-ups, and hefty interest rates will play right into that potential issue. If you do have adverse credit history it may still be possible to open a business bank account.
Firstly make sure that you keep your information current with all the main credit referencing agencies. You can do this directly with them. Old or wrong information can have a huge impact on your score and slow down any application for finance. Missing information can also be a big factor so cover everything. As long as it is all true, the more detail the better.
You can also look to establish trade lines with your suppliers. If you buy supplies, ingredients or other materials from third-party vendors, those purchases could help build your business credit. Many suppliers extend trade credit, which means they allow you to pay several days or weeks after you receive the inventory. If you have this type of accounts-payable relationship, ask your supplier to report your payments to a business credit bureau. Your business credit score will get a boost as long as you stick to the terms of the trade agreement.
It sounds simple but a good tip that is often over missed is to make payments to creditors on time or early. It is often tempting to juggle payments in line with cash flow but you will reap the rewards if you make good, regular payments to creditors. If you can make them early, that would be even better.
Small-business loans can actually boost your business credit if you make all your payments on time and the lender reports to a business credit bureau. But not all lenders do. Research which lenders actively report to a business credit bureau and try to get your finance through them. And then pay it back early!
The advantages of a strong credit rating to new companies and existing companies are invaluable.
And lastly, keep your record clean. Do not borrow what you can’t afford to pay back.
