For most small business owners, funding is key to continued success. There are variety of options when borrowing money, such as term loans, equipment financing, or a small business line of credit.
Small business owners often face a time consuming and frustrating business credit application process. Many small businesses don’t qualify for a loan from a big bank and they often face rejection.
That’s why it’s so important to put forward best business credit application possible. Below are ten ways to boost your business credit application, ensuring you have the best chance of succeeding in getting the financing solutions your business needs.
1. Pay Off Outstanding Debt
Credit scores are calculated from a number of variables — the types of credit you’ve applied for, your credit utilization rate, and the number of new accounts and inquiries. The most influential factor in your credit score, however, is your payment history.
In fact, if you recently missed a payment or made a late payment, your score can drop by up to 100 points, depending on what your score was to begin with.
If it’s necessary and financially possible, satisfy any outstanding payments to stop them from having a negative impact on your credit score.
2. Watch for Liens
If there’s a lien on your business, it means that a lender can sell your business and its property if you default on a loan. There are two types of liens — tax liens imposed by the IRS, and Uniform Commercial Code (UCC) liens placed by banks and lenders.
A tax lien means you didn’t pay your business taxes on time and in full and didn’t work out a payment plan with the IRS. A tax lien on your credit report will make it incredibly difficult to secure any type of financing. You’ll need to work with the IRS to establish a payment plan immediately. When the debt is satisfied, the tax lien will come off of your report.
UCC liens often hide in the small print of funding paperwork, so it’s important to read contracts thoroughly to determine if a lien is present. If you’ve already received a loan from a bank or lender and aren’t sure if you have a lien, you can write to your state’s Secretary of State to get more information.
3. Know the Best Time to Apply
Does your cash flow fluctuate throughout the year? It’s wise to apply for a loan or small business line of credit during or immediately after your business’s best financial season.
This is because business credit applications almost always require bank statements, so you want to demonstrate how well your business performs.
4. Work with Your Landlord
When you rent space from a landlord, they have first dibs on your property should you fail to pay rent. Some loan applications require your landlord to sign a Landlord Subordination Agreement waiver, which means the lender would take first rights to your property away from your landlord.
Because you want your landlord on your side, work to show them why you need the loan, and how it will ultimately benefit them — when your business succeeds, it lessens the risk that you won’t make rent.
5. Have a Background Statement
Tell the story of your business and why you need a loan, and put it together with information about your experience, education, and expertise.
Relevant information could include your resume, degree, certifications, professional licenses, and any professional awards you’ve earned. Remember — the more information you provide, the more lenders have to work with when determining your creditworthiness.
6. Segment Your Business Plan
Think of your business plan in three parts — historic, competitive, and projected. The historic section covers your business’s finances in the past and present. The competitive section identifies your market and industry, highlighting what makes your business different from other companies doing the same thing. The projected section addresses how you’ll use the money from the loan or small business line of credit.
7. Be Conservative & Realistic in Your Estimates
It’s tempting, but don’t be overly optimistic about increased sales and revenue after receiving line of credit. Financing involves a continued relationship with your lender, with you making payments over a period of time. Rather than make promises you can’t keep, it’s wise to show lenders proof of a healthy cash flow and that you’ve reviewed your budget to make sure costs are managed and reduced wherever possible.
8. Don’t Forget Your Savings Account
It goes without saying — the more money in your business’s bank account, the better. When applying for funding and lines of credit, aim to have money to cover three months of operating expenses in your savings account.
9. Match Your Lender to Your Loan Size
If you only need a small loan, big-loan lenders may turn you away. There are fixed costs to processing loans, meaning they’ll earn less money from a business applying for a smaller loan or line of credit. Look into lenders that specialize in smaller loans.
10. Appraise Your Collateral
When using collateral to apply for a loan, it’s helpful to get it independently appraised before applying. Some lenders and banks require third-party appraisal of your collateral’s worth to determine if it’s truly worthy of backing your loan.
The better you can describe your business and your need for a small business line of credit, the stronger your application will be. When you’re ready to apply, contact ValueOne at 855-258-2571 and learn about our small business funding options.