How to Improve Your Business Credit Score to Get an SBA Loan
Getting an SBA loan can be a great way to get funding for your small business. But having a good business credit score is key to qualifying for the best SBA loan rates and terms. Here’s a plain English guide on how to improve your business credit score so you can get approved for an SBA loan.
What is business credit and why does it matter?
Your business credit score is like your business’ financial report card. It shows lenders and suppliers how reliably your business pays its bills. If your business has a high credit score, you’re seen as being trustworthy and lenders will be more likely to approve you for financing.But if your score is low, you probably won’t qualify for an SBA loan which typically require scores of 75+. And you’ll pay higher interest rates which eats into your profits.So improving your business credit score can save you money while making it easier to get funding to grow.
Check your current business credit reports
Before you can fix your business credit, you need to know what’s currently being reported.Get free copies of your business credit reports from the major bureaus like Experian and Equifax. Carefully review them to spot any errors that may be unfairly dragging down your score.About 30% of reports contain mistakes so it pays to scrutinize your reports. If you find any errors, file disputes and get them corrected ASAP. This can give your score an almost instant boost.While checking your reports, also make note of any negative info that is accurate. This will give you a roadmap of what accounts need extra attention to improve.
Pay all bills early and in full
One of the biggest factors affecting your business credit scores is your payment history. When you pay bills late, it gets reported to the credit bureaus and your score takes a hit.Set reminders to ensure you pay all bills at least 5 days before they are due – for both business and personal accounts. Setting up autopay can also help avoid missed or late payments.And of course, you’ll want to pay the full balance rather than just the minimum due. This level of financial responsibility shows lenders you are low risk.
Use business credit cards responsibly
Business credit cards can help establish a positive credit history if used prudently.Try to keep your credit utilization below 30% by limiting charges to 30% or less of your total credit limits. And as mentioned, be obsessive about paying your balances early and in full each month.When applying for new credit cards, space out applications by at least 6 months. Too many new accounts in a short timeframe can indicate risk and cause your score to drop temporarily.
Build trade references
Trade references show that you pay your business suppliers and vendors on time. Things like office supplies, software subscriptions, equipment leases, and inventory purchases count.Actively contact your vendors and ask them to report your positive payment experiences to the business credit bureaus. The more trade references you have, the higher your scores will climb.
Monitor progress frequently
Checking your business credit reports frequently enables you to monitor your progress and quickly dispute any errors.Aim to check your reports from Experian and Equifax at least quarterly. It’s free and easy to set reminders so you stay on top of your business credit health.Be patient and persistent – it takes time to overcome past credit mistakes. But with a diligent approach, you can improve your business credit score dramatically within 12 months or less. And that will open more doors to financing so you can grow your business on your terms.
How to get your official credit scores
The tips above will help improve your business credit reports. But keep in mind that lenders use your numerical credit scores, not just your reports, when making decisions.You’ll want to monitor your actual scores from Experian and Equifax Small Business to track your progress. There are free options and paid options:
Free business credit scores
- Nav’s business credit score is free and updated monthly.
- Credibility Capital offers a free Experian business credit score and report.
Paid business credit scores
For 24/7 access to both Experian and Equifax business credit scores, pricing starts around $30-$60 per month. Two popular options are:
The paid services provide additional tools like credit monitoring alerts. But the free scores usually suffice when just starting out.As your scores improve over time, you’ll be in a strong position to qualify for an affordable SBA loan to take your business to the next level.
Types of SBA loans and credit requirements
If you’re wondering what specific SBA loan programs are within reach, here’s a quick primer on the most popular options:
SBA 7(a) loans
The SBA 7(a) loan is the SBA’s primary loan program. It provides up to $5 million for working capital, equipment, renovations, and more.Minimum credit score requirements for SBA 7(a) loans can vary a bit by lender. But scores of 650+ should qualify for approval from most lenders. Rates and terms will improve significantly once your scores reach 700+.
SBA 504 loans
SBA 504 loans offer up to $5 million+ for major fixed assets like real estate or heavy equipment.Because they require 10-20% down payment, 504 loan credit requirements are a bit stricter than 7(a). You’ll generally need at least a 700 credit score to get approved.
SBA Express loans
SBA Express loans offer faster approvals for up to $500,000.Minimum credit requirements for SBA Express loans range from around 600 on the low end to 650+ for better rates.
SBA Community Advantage loans
The SBA Community Advantage pilot program helps businesses in underserved communities.Your personal credit score needs to be at least 650-680+ to qualify for this specialized loan.
The bottom line
A good business credit score makes financing easier and more affordable for your company. Following the steps above will help you methodically build your scores over the next 6-12 months.Be diligent, be patient – and work with an experienced lender when you’re ready to apply for an SBA loan. With perseverance, you can access the funding you need to grow on your own terms. Here’s to your success!