Most people do not think about their credit until they go to borrow money. Only then do they find out that there might be problems. Every business owner should be proactive to monitor both their business and personal credit scores, as both are considered in financing a small business. Why?
Businesses need capital to operate. The most vulnerable time in a business cycle is when cash flow is low. This is also the least likely time the bank will loan money. When you need alternate sources for additional working capital, or financing for new equipment to take on a new project, your credit history will determine your whether you can borrow money, and at what ‘cost of funds’ or interest rate.
Banks are looking for personal credit scores of any principals at a business to be in the 700 range or above. As few as two payments over 30 days late can drive your score down below what traditional bankers are looking for. Dun & Bradstreet scores can be negatively affected when smaller trade accounts report to D&B (you know, the $100 you keep forgetting to pay) while your big trade lines may not reporting tipping the scales out of your favor. Banks typically aren’t digging to uncover the reason why the score is low. Items just as judgments, late pays, tax liens, bankruptcy may result in being turned down for credit, or higher rates.
What lenders look at:
Verifiable Time in business; verified through incorporation filing or IRS Schedule C
Business credit (D&B or Paydex)
Personal Credit scores
Banks will consider profit and loss statements, interim statements, and balance sheets
Equipment leasing companies typically do not need financial disclosure unless the request is for more than $100,000 or the time in business is under 2 to 5 years
What can you do to help your borrowing power?
√ Pay your bills on time! Many busy business people just run out of time to get it all done and monthly bill paying, especially at home, falls after generating income. Outsourcing bookkeeping and accounting can free up time at the office.
√ Check your credit report every four months by pulling one of the three credit bureaus each time. http://www.annualcreditreport.com/ is a free service. Verify the accuracy of what is reported, dispute inaccurate items, and clear up past due accounts through payment or proof of payment.
√ Obtain your business credit report from Dun & Bradstreet (D&B) http://www.smallbusiness.dnb.com/. This is not a free service.
√ Do not co-sign loans for others. Their late payments reflect directly on your credit report. There is typically a very good reason credit is not being extended to them without a co-signer.
√ Obtain a secondary source of financing, such as equipment leasing, to keep bank lines open for cash flow needs or emergencies. Many leasing companies will accept credit scores below bank requirements provided any liens are paid and all accounts are current.
√ Don’t max out credit cards. Keep a few unused credit cards open to keep your available credit at 45% or more.
Article Submitted By
Lisette Johnson
Integra Leasing & Commercial Finance
Keeping Your Cash Working For You
