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Steps Businesses Should Take Before Applying for More Credit

Steps Businesses Should Take Before Applying for More Credit

Review and Improve Your Business Credit Reports

The first critical step is to check your business credit reports with Experian, Equifax, and Dun & Bradstreet. Review them closely and dispute any inaccuracies – mistakes on these reports could negatively impact your creditworthiness.

You should also work on improving your business credit scores if they are low. Some tips:

  • Pay all bills on time – lateness and collections can significantly drag down scores
  • Use business credit cards responsibly – high utilization also causes scores to decrease
  • Build trade references – things like lines of credit and net 30 accounts with suppliers bolster file depth and scores

The more positive payment history and trade lines you have, the better your chances of approval.

Reduce Personal and Business Debt

Lenders like to see that you have the ability to take on additional debt without overextending yourself. Before applying:

  • Pay down balances on credit cards and loans
  • Pay off collections and charge-offs if possible
  • Avoid taking on new personal debt

Also make sure your business isn’t carrying excessive debt. You want your debt-to-income ratios to be moderate so new credit extensions don’t cause too much additional burden.

Have Multiple Years in Business

The longer your company has been operating, the less risky you generally appear to lenders. If your business is less than 2 years old, you may need to rely more on your personal credit and guarantees. Build up more time in business before taking on new financing whenever possible.

Know Your Finances Inside and Out

Lenders will review your business’ financials closely – tax returns, bank statements, profit and loss statements, etc. You should know the following before starting applications:

  • Your exact annual revenue and expenses for the last 2-3 years
  • Projected revenue and net profit for this year and next
  • Your average monthly bank account balances
  • Existing debts and regular monthly payments

Having organized finances makes getting approved much less hassle.

Improve Your Chances with Collateral

While no collateral is required for some forms of financing, having assets to secure loans can improve your chances and terms. Things like equipment, property, and licenses that a lender can seize if you default represent less risk for them.

Even personal assets like savings accounts or homes can be used. The more collateral you have, the better when credit is limited.

Shop With the Right Lenders

Applying randomly with lenders you find can result in numerous declines damaging your scores further. Do some research to find lenders willing to work with businesses in your scenario – newer companies, weaker credits, higher risk industries etc.

Things that may help:

  • Community banks and credit unions
  • Alternative and asset-based lenders
  • Microlenders and nonprofit lenders
  • Government small business loans

These types of lenders are sometimes more flexible than big banks.

Don’t Rush the Process

It takes time to optimize your credit, collateral, and finances for improved approval odds. Applying too soon can spoil your chances for when you are actually ready. Be patient and focus on business growth rather than acquiring debt.

The steps outlined here take effort but are worthwhile. With responsible preparation, you can get funding to take your business to the next level. Let us know if you have any other questions!


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