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Maintaining a favorable business credit is important if you are looking to apply for a loan to grow your business. Almost 1/3th of small business loan applications are rejected by large banks as per a report published in the first half of 2019. The scene is not so good with small banks either that approve just half of their loan applications according to Biz2Credit. Hence, it is not so difficult to assume that the competition is huge and you need to pass through the cut-throat competition to get your loan application approved.
Maintaining a good credit score is vital as well as challenging for many small business owners who are looking for loans. If you’re one of them, here are four important points to take a look at that may ruin your business credit – unknowingly.
Don’t ignore your business credit reports from major commercial credit bureaus like Equifax, Dun & Bradstreet, and Experian. Although it is not possible to revive the credit report from these three for free, it is worth an investment to make if you desperately want a loan for your business to thrive and grow. Once you secure these reports, go through them and verify if all the accounts mentioned are yours, they are all up-to-date, and show correct information about your business, especially how long the business is around. All these are crucial information and any errors can affect your credit report badly which means there are chances your loan application can get rejected.
In case of any discrepancies are found, don’t hesitate to contact the bureau and follow the steps to get them revised. You can then sign up for a free credit monitoring service. This will help you to be vigilant and you can fix any future problems in a jiffy.
Having business credit in place is important. Remember, you are not doing any favors to your business by relying on your personal money to fund your business. If you have not done it already, you still have time to do so. Start by opening a bank account under the name of your business and use it for all your business transactions. Why do so? Well, you get double benefits! You get an Employee Identification Number which helps to get a loan approved easily and of course, your bookkeeping becomes super easy.
Once this is done, apply for a business card and use it regularly. Remember the goal is to register more credit lines for your business. You can also add tradelines manually for your vendors and suppliers even if they are not reporting your account to the credit bureaus like Dun & Bradstreet. Don’t forget to submit the creditors.
Using too much credit is not good just as not using enough credits to get your loan application approved. It doesn’t matter whether you are paying your bills on time or paying your credit card balance in full each month if you are using too much of your credits. Credit utilization is a thoughtful act and is one of the many factors that are considered by credit bureaus when determining your credit score. Ideally, it should be down to 30% before your credit card statement date. You need to ensure that the average daily balance is based on a lower amount.
Business credit, unlike personal credit, does show up in your credit report if paid late. For example, if your vendor gives you a time limit of 15 days and if you are paying on the 16th day, you are late! If a supplier has given a timeline of 30 days and if you are paying on the 31st day, you are late. This will be officially reported to credit bureaus as a late payment.
However, there is a way out. Before you cross your last date of payment, get in touch with your creditor and negotiate for a new date and not report the overdue payment. If your past record of on-time payments is good, chances are they will favor you.
Maintaining good credit is not only important it is hard too. But if you are consistent, take it seriously, and consistent with good business practices, your business credit score will be in your favor and help you qualify for your small business loan.