by Ben Gold, President at QuickBridge
A strong personal credit profile demonstrates your business’s creditworthiness to a potential lender. According to data from the National Small Business Association, more than 70 percent of small businesses seek financing. And more than a third of companieswho have been in business for at least two years that apply for a loan get denied, as stated by recent data from the Federal Reserve. One of the main reasons why businesses are unable to qualify for a small business loan is because they have a weak credit profile or a low credit score.
To increase your chances of a loan approval, you need to prove that you’re able to manage your money and sustain positive cash flow.
Here are four ways you can improve your business credit profile:
1. Pull Reports and Check for Errors.
Business owners and individuals tend to check their credit only when they’re in need of a loan. But one way to improve your business credit profile is to regularly review your reports for errors. Getting into this habit can ensure minor errors don’t adversely affect it.
Did you recently pay off your balance for a new equipment purchase? If the payment isn’t mirrored on your report, chances are a clerical error may be to blame. If the information in your report is inaccurate or out of date, you need to file a dispute through the credit reporting agency’s website.
The three major business credit bureaus include FICO Small Business Scoring Service (SBSS), which is the only one used by the U.S. Small Business Administration; Dun and Bradstreet (D&B) PAYDEX, and Experian Intelliscore. A business credit score is based on your business’s history of payments to suppliers and lenders. However, it can also be impacted by industry, business size, and total revenue. Each bureau uses its own metrics and data points for determining your creditworthiness and have slightly different ways of filing and resolving a dispute.
2. Keep Your Debt Load Low.
Debt doesn’t always lower your score. But it can if your debt financing ratio is too high. There are several ways to effectively pay down business debt, including eliminating excess costs, restructuring debts through a third party, and formulating a payback plan. Additionally, you should always be aware of your current financial situation and adjust your budget for unexpected changes in cash flow. Keeping your debt load low will improve your business credit profile and allow lenders to see that you’re in control of what you owe and can pay off expenses before the due date. The lower your debt, the less risky lending to you may seem.
3. Increase Available Credit on Business Credit Cards.
Lenders also look at the amount of credit that you can use and prefer a lower credit utilization ratio. To raise your available funds while lowering your ratio, get into the habit of paying off all your bills in a timely manner, ideally before they’re due. As pointed out by NerdWallet, D&B gives sterling scores – 100 using its PAYDEX metric – exclusively to those who pay off what they owe before the deadline. Also, aim to use your business credit cards on a regular basis. By consistently using your cards, holding a reasonably low balance, and paying all creditors on time, you should improve your business credit profile.
4. Maintain Steady Cash Flow in Your Bank Account.
While it’s important to spend time on building your brand and generating sales, you need to maintain the amount of money moving in and out of your business. Positive cash flow is an indication that your business has the working capital needed to settle debts, pay expenses, and cover unforeseen expenses. While cash flow in your bank account doesn’t impact your business credit profile directly, it is something that lenders look at as part of the underwriting process. And according to the U.S. Small Business Administration, a lack of steady cash flow is the No.1 reason for business failure.
Following these tips can improve your business credit profile and put your business on track for success.
Ben Gold is president of QuickBridge, a privately-held financial services firm providing “small business loans” and short-term working capital funding solutions for small-to medium-sized businesses nationwide. Based on its growth, QuickBridge has ranked two consecutive years on the Inc. 500 Fastest Growing American Companies list. Ben is a thought leader in the financial tech. industry and a contributing member of the Forbes Finance Council.
