Updated: Feb 3
Most business owners have applied for corporate credit at some point, whether in the form credit cards, bank loans, alternative funding, or just trade-based lines of credit. Whether you were approved or denied, chances are pretty good you don't know what you did right (or wrong) that brought about that result.
If you were approved, count yourself among the most qualified, best prepared, or just downright lucky, because small business owners are usually among those most frequently denied when applying for business-based, unsecured lines of credit.
Getting approved for business funding is actually not as difficult as some might think, especially if you have a good grasp of what specific information lenders are looking for from your company, such as how many years you've been in business, what industry you're in, and what your base income and expenses are.
In the past four years, I've been helping small business owners get into a better position to qualify for supply lines, retail credit, loans, SBA funding, and bank lines of credit. That usually involves updating their D&B report, adding their previous payment history to the credit file, and then pointing them toward the funding and resources to get them to their goals.
So if you've been thinking about lining up funding for your small business, here are a few tips to help you get prepared for the application process.
Know what is in your business credit reports. Even though most lenders still rely on the D&B report to validate business information and make credit decisions, many lenders and creditors look for validation by pulling your business credit report from other commercial credit bureaus, such as Business Experian or Equifax Business.
Know what data is available to lenders on the web and work toward consistency. Your business name, address, phone, principals, industry, and public presence should match across all platforms, including on your website, Secretary of State filings, telephone and tax records, and public search engines.
Know your financial information like the back of your hand — literally and figuratively. When asked what your income was for the previous 3-6-9 or 12-months, don't just show up — own it — and provide legitimate numbers. Most lenders are going to require 3-6 months of bank statements to back up your figures, and it's never a good idea to start off this relationship boasting a higher income than your bank statements can verify.
Be realistic when naming your desired loan value. Most lenders are only lending 10-15% of your prior year's income, however, some banks are loaning up to 20% and I've seen the SBA back loans as high as 25%.
Every lender is different, so be prepared to meet criteria of a broad base. Income should be (at minimum) $5000 per month with fewer than seven NSFs in the business bank account over the past 3 months. Some lenders require an average bank balance of $1000 or higher, while others have no minimum. In general, those with FICO scores above 550 and Paydex scores above 75 are positioned for success, but the approval amount, interest rate, and repayment schedule will likely be gauged by other factors.
Like it or not, you are going to have to provide your social security number and EIN documentation. World-changing events have levied a heavy burden on everyone, and that means having to prove you are who you say you are. In most cases, you will need to agree to (at minimum) a soft pull on your personal credit report (to verify that you can meet the FICO minimums and are not a fraudster) and a hard inquiry on your business credit report to verify your business is legitimate.
Personal and business bankruptcies are no longer the taboo black-mark they used to be. In fact, some lenders are more than willing to work with someone whose bankruptcy has been discharged, so long as it has been at least two years since it was discharged. Others will accept discharges as recent as the same month as the loan application.
Your company's line of business matters. Some lenders won't cater to real estate, construction, trucking, gun stores, or those in the adult entertainment industry, but the list of acceptable industries is long and wide. That's why it is so important that your SIC code is correctly identified in the business credit report.
In short, those who are prepared to face the hard questions and meet specific criteria are going to be the ones who get the highest approvals, the lowest interest rates, and the easiest repayment options. Let me know if you have any specific questions about the above information or need answers to anything I haven't covered. Information and consultations are always free, and just a quick phone call away.
Also reach out to me if you are interested in applying for business-based loans or lines of credit. I'll be happy to review your qualifications, submit your application, and put you in contact with an account executive who can work with you to find your best funding solutions.