Updated: Feb 3
Over the years, we have assisted many clients through the process of applying for credit. Along with lots of approvals, there have been some who were declined. When navigating the reasons for denials, we’ve found a few that seem to stand out, possibly because they seem so trivial.
We want to make sure business owners understand how some of the smallest details can cause the biggest headaches when your company is applying for business credit.
15 Most-Common Reasons Applications Fail
1. Incorrect or incomplete company name, address, or contact info The name, address, and phone must be exactly as in the business credit file. Be sure to include the Inc, Corp, or LLC on your business name. Contact information should reflect for the business, not you personally.
2. Providing an EIN or DUNS number in the SSN slot If the application requires your SSN, you need to provide it. A social security number is used to validate the applier’s identity. Only use the EIN number if the application has a specific slot for it. Only use a DUNS number if there is a specific slot requesting it. Using any other number in the SSN slot could constitute fraud or identity theft.
3. Applying under a name not shown in the business credit file Only listed owners or officers are eligible to submit credit applications. Do not allow anyone outside your business to apply in your name. It is dangerous to add principals to your file solely for credit purposes.
4. Refusing to agree to personally guarantee Agreeing to personal guarantee does not mean a PG will be required. Underwriters may require a guarantor if business credit is insufficient. Many underwriters require a guarantor for very young businesses. Business credit is not the same as personal credit in the business name.
5. Misrepresenting corporate data Don’t misrepresent or inflate your annual income. Don’t represent personal income as business income. Misrepresenting any corporate data to achieve credit constitutes fraud.
6. Requesting excessive credit limit amounts Start small and work your way up by proving positive payment habits. Lower credit line requests generally are more likely to be approved. Requesting an aggressively high credit line will often be denied outright.
7. Low personal credit scores Credit underwriters usually set a base personal FICO requirement. Higher personal credit scores allow lower interest rates. Low personal credit scores indicate irresponsible or slow payment habits.
8. Having a freeze, block, or fraud alert on the personal credit report These can keep creditors from being able to verify your identity. May keep creditors from being able to verify base FICO criteria. This could indicate possible fraud or identity theft. Any uncertain or unknown status indicators can cause denials.
9. Business credit file has no scores, ratings, and history Business creditors require certain base scores and ratings to be present. Most business lenders require a full D&B rating to meet their criteria. Approvals are generally based upon the highest positive payment history.
10. Old bankruptcies, liens, and judgments Bankruptcies stay on the business credit file for up to 25 years. Unresolved liens and judgments show irresponsible behavior. Old, outdated history should be removed before submitting applications.
11. Choosing the wrong type of credit High dollar purchases are generally established as revolving credit. Choose a store-only card if you don’t want to personal guarantee. Choose a major carrier card (VISA/MC) if involving personal credit is OK.
12. Repeat or multiple applications to same creditor If denied, most creditors prohibit a new application for 6 months. Don’t apply to several companies under the same carrier at the same time. Credit applications should always be kept to a minimum to reduce risk.
13. Applying to a company you already have bad history with If you failed to make personal payments, you will be denied business credit. If you defaulted on a business or personal account, you may be denied. Creditors have long memories and many affiliated or partner providers.
14. Applying for credit outside your general qualifications There are some types of credit your company will not likely need or be qualified to apply for. Some companies who offer working capital, for instance, cannot lend to real estate, consulting, or trucking companies, among others. It is also unreasonable to expect you will get a million dollar loan from a bank if your new business has zero income or your personal FICO is very low.
15. Mass applications within a short period of time Multiple inquiries indicate desperation and can raise risk ratings sharply. Multiple applications generally indicate a possibility of identity theft. Too many applications submitted at once throw up red flags of risk.
LESSON: When you are working to achieve credit for your business, the goal is to get the credit your company needs, while also improving your corporate credit payment history. The last thing you need is to have all you’ve accomplished stripped away. If you follow the guidelines, you should be able to get the approvals you want without any unnecessary setbacks.