Having healthy credit is safer and smarter if you are looking to increase your business debt. Good credit scores help to qualify you for more favorable loan terms, such as higher loan amounts, longer repayment periods, lower interest rates and more. If you take out a business loan when you or your business has bad credit, you are more likely to work with less scrupulous lenders who are happy to charge exorbitant fees that ensure your loan is less effective at helping your business survive and thrive.
Fortunately, it is possible to improve your business’s credit scores before you apply for a loan. Here are a few strategies that can help raise your credit and qualify you for the loan terms you deserve.
Work on Your Personal Credit
In a perfect world, your personal credit might have no effect on the credit of your business — and vice versa — but in the real world, as the business owner, your credit score is often explored during examinations of your business credit rating. Many lenders will weigh your personal credit score equally with your business’s credit in making financing decisions, so you can improve your chances of acquiring a loan by putting effort into improving your personal credit as much as possible.
For the most part, building good personal credit takes time. Credit reports favor borrowers with a long history of good behavior, so you should strive to maintain good borrowing habits for your entire lifetime. If you have some shade borrowing practices in your past, you can try to rectify them with better practices moving forward, such as:
Keeping your credit utilization ratio below 30 percent
Paying bills consistently on time and in full
Acquiring a mix of different types of credit
Reducing the number of hard inquiries on your credit
Maintain Low Credit Utilization Ratio
It is tempting to put every expense your business incurs on a single credit card or line of credit, but doing so is a messy way of spending money that can harm your credit score in the long term. As with personal credit, business credit utilization should remain low — but not as low as zero, as no credit use does not help lenders understand your creditworthiness. While you can use as much as 30 percent of your credit, business credit thrives around 10 percent utilization. So, you might want to utilize your credit accounts for specific types of spending and find other funding solutions for the majority of your expenses.
Update Your Business Credit Information
There are three credit bureaus that collect information about business credit, and not every lender provides information about your borrowing behavior to every bureau. As a result, some bureaus may report lower scores for your business. At least once per year, you should check your business credit reports from all three bureaus and upload appropriate financial documents and trade references. Then, when lenders look at your business credit, you can be sure that they are seeing the whole picture. As a bonus, this process can also help you identify false or fraudulent uses of your business credit, keeping your business safe from financial attack.
Streamline Business Bill Payment
Business credit scores are calculated similarly to personal credit scores, with the most important factor being the frequency of on-time payments. If you are notorious for missing bill payment deadlines simply because you forget, you should automate the process of bill payment as much as possible. There are many different types of software that will track business bills and send out payments without your intervention; you can also hire staff or outsource to accounting firms to ensure that bills are paid on time or ahead of schedule.
Contrary to popular belief, neither you nor your business need a perfect credit score to obtain a loan. In fact, there are many lenders that will happily do business with businesses and business leaders with far less than stellar credit — for a price. If you are wondering how to get a small business loan with your current credit score, you can talk to a lender today for useful information about what you can achieve without working toward higher business credit.