In a tight economy, good credit is key to expanding your business. Here are a few tips to keep your credit on track.
A great business plan can get your foot in the door, but it will rarely get you a loan. As America struggles through one of the worst recessions in history, lenders are facing tighter restrictions, which means they're increasingly cautious about which businesses they're lending to. Good credit has always been an important facet of the overall health of your business, but experts agree that now is the time to beef up more than just your credit score and take a deep look at how you can improve your business in the eyes of lenders.
"The thing that's hitting us right now is the conditions of the marketplace," says Denise Beeson, a commercial loan officer with Bay Sierra Financial based in Santa Rosa, California. Beeson explains that banks are sitting on very toxic portfolios, and the only firms that are receiving funding are high-end sterling borrowers; in other words, businesses that exhibit a proven history of repaying their loans and posting profits.
Building and Maintaining Good Business Credit: Why It's Important
Good business credit provides access to capital, which is more important than ever, says Jeff Allen, a partner at Trendant, a small business consulting firm based in Utah. "What we've seen with a lot of small business owners is that they have really good months and they'll have an influx of orders, and they'll be able to fulfill them, but the next month or the month after that, they're back down to what they were," meaning that the orders stop flowing and the businesses need cash to sustain their operating costs. It's not uncommon that small businesses face this kind of down time, Allen says, and with good credit small businesses can weather these types of marketplace uncertainties.
Building and Maintaining Good Business Credit: The 5 C's of Good Credit
The crucial elements of borrowing money from a bank can be grouped into five categories known as the "Five C's," which is the ultimate credit checklist for any entrepreneur or small business owner.
"The five C's are very important," says John Seelinger, a California-based volunteer at SCORE, a non-profit organization dedicated to assisting entrepreneurs and small business onwenrs. "You can't afford to be sloppy or haphazard with them. The underwriting process may be different, but the fundamental five C's are always there," he says.
Building and Maintaining Good Business Credit: Resources to Improve Your Credit
The first thing you can do to improve your credit is to make sure that all credit ranking companies, like Dun and Bradstreet, have the correct information about your firm. A wrong company name or a repaid debt that is not accounted for can ruin your chance of securing funding. Rectify any administrative mistakes before approaching a bank.
And, if you're having trouble securing a loan, or if you've been denied funding altogether, Beeson advises that you consider non-traditional financing routes, like peer-to-peer lending. Sites like Prosper and Kiva connect people who want to invest money with people who want to borrow money. And though you're not going to be able to finance a multi-million dollar business through these arrangements, they can get your business back on track.