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Maintaining 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 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 bureaus like Equifax, Dun & Bradstreet, and Experian. Although it is not possible to revive the 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 company, especially how long it has been around. All these are crucial information and any errors can affect your 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 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 company by relying on your personal money to fund your needs. 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 company and use it for all your business transactions. Why do so? Well, you get double the 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 company. You can also add tradelines manually for your vendors and suppliers even if they are not reporting your account to the bureaus like Dun & Bradstreet. Don’t forget to submit the creditors.
Using too much credit is not good just as not using enough to get your loan application approved. It doesn’t matter whether you are paying your bills on time or paying your card balance in full each month if you are using too much of your line. Credit utilization is a thoughtful act and is one of the many factors that are considered by bureaus when determining your score. Ideally, it should be down to 30% before your statement date. You need to ensure that the average daily balance is based on a lower amount.
Business credit, unlike personal, does show up in your 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 business credit is not only important it is hard too. But if you are consistent, take it seriously, and are consistent with good practices, your score will be in your favor and help you qualify for your loan.