Business Credit News

The New Rules of Getting a Business Loan

Getting a business loan in today’s economic climate is a bit like preparing to climb Mt. Whitney. Before you start, are you in good physical (and fiscal) shape? Have you thought of everything you’ll need to make your journey problem-free, as in no surprises and no hidden credit traps?

FICO Inc. recently reported that in April 2010, some 25.5 percent of consumers —that’s 43.4 million people — had credit scores below 600. Historically, the rate of people with scores this low has hovered closer to 15 percent. Given this drastic change, it’s no wonder that banks and lenders are being more meticulous than ever in their underwriting process, thoroughly analyzing each applicant’s personal and business credit history.

Before applying for a business loan, you need to be aware of three red flags that lenders look for: 1) missed or late payments for bills such as car payments, student loans, or other important bills; 2) high credit balances or too many open credit cards; and 3) high debt-to-credit ratios.

Don’t disregard the effect your personal credit score has on your business loan’s approval. Lenders understand that the ability to pay back a business loan is closely related to the health of an entrepreneur’s personal credit. In addition, business and credit scores help determine how much the loan will cost you. The better the score, the better the rate.

If you’re seeking a loan of more than $50,000, you may also be asked to provide past personal and business tax returns for income verification, in addition to the financial pro formas and personal guarantees lenders often require. Depending on the size of the lender, additional income verification documents may be required. A smaller lender has more to lose if you default on your loan than does a larger financial establishment.

Several months before you apply for your loan, you should check your credit scores with one of the major credit agencies (Experian, Equifax and TransUnion). You can also get your business report from Experian and/or Dun & Bradstreet. Look for any mistakes and contact the agency to be sure they are corrected.

If your business credit score is not up to par, consider building it with the help of our experts at Business Credit Services. Our Business Credit Builder takes you through a five-step process that lowers the use of personal credit in your business and increases your chances of obtaining business financing.

David Gass
Founder, Business Credit Services, Inc.
Earn.com Expert Advisor

Tags: business loans, loan application, loan proposal, small business loan, small business loans