Interest rates have been historically low for quite some time now, however that does not mean that every borrower is getting an attractive rate. If your company has low credit scores (less than 650)--or perhaps no credit history at all--lenders will likely charge a higher interest rate because your company would be perceived as "risky." This is for any business, but it is particularly true for minority-owned companies.

Biz2Credit recently conducted an analysis of capital access for Latino-owned companies. Many of them have poor credit histories or no reportable track record of loan repayment. This happens because often Latino-owned businesses are home-based and family-run. In fact, approval rates for Latino-owned companies are 5-7 percent lower than they are for other groups.

While Latinos are a highly entrepreneurial group, they frequently find themselves shut out from low interest bank loans because they lack solid credit histories. Cultural and language barriers may also prevent Latino entrepreneurs from seeking traditional small business loans from banks. The result, unfortunately, is that when they need money for working or expansion plans, they cannot get it from traditional lenders. Thus, Latinos turn to "alternative lenders" such as cash advance companies and "pay day loan" companies that charge interest rates of 30--40% or more.

The bottom line is that creditors are reluctant to make loans to people who are less likely to pay the money back. Thus, borrowers must pay a premium (in the form of higher interest rates) because they have not established a history of timely payments to creditors.

Fortunately, increasing credit scores is possible, although it will not happen overnight. Here are some tips for improving credit scores and making your business more creditworthy:

1.Incorporate your business

Formally establish your company through an accountant or a service provider, such as The Company Corporation, which helps thousands of small businesses form LLCs each year. The next step is to set up bill payments in your company name--even if you are working out of your home. Having a real address on file will give lenders more confidence that a business is legitimate and that a company is able to pay its bills. Thus, creating a C-Corp or LLC makes a company more "serious."

2.Separate business and personal accounts

It is possible to build a solid business credit history even if your personal credit history is less than spectacular. One way is to separate your company's bank accounts from your personal assets. After doing this, make sure that you stay on top of your company's bills. By establishing that your business pays its debts on time, you put yourself in a better position to secure financing at attractive rates and terms.

3.Review your business credit reports

A business credit score is a good predictor of the likelihood of loan repayment or default. Credit rating agencies, such as Equifax and D&B, examine the following factors:
company size
business structure
outstanding balances of open accounts
payment promptness
length of credit history
industry risk
credit utilization
public records (judgments, liens, bankruptcies).

Check your business credit report at least quarterly to determine if it is accurate or if there are errors. You don't want your business to suffer because of a judgment against your company that was resolved years ago or a mistake made by the bank.

4.Establish a company credit card

Applying for a business credit card is a quick and easy. It is also a smart first step toward building a history of making prompt payments. As an added bonus, business owners can also rack up "rewards points" that can be cashed in for rebates or prizes. Paying a business credit card on time and in full each month is a fast and effective way to demonstrate creditworthiness. Late payments, however, will do more harm than good; they will negatively impact the solid business credit history you seek to prove.

5.Pay bills in advance if possible

Some creditors are willing to offer discounts for pre-payment. This is a proven tactic to lower your debts and build a solid credit history at the same time. Thus, ultimately, you can improve cash flow by simply paying in advance. This method eliminates black marks for late payments while lowering the cost of goods sold. Improving your annual cash flow will help increase your chances of securing financing.
Further, if you establish better relationships with your vendors, they in turn will be willing to serve as credit references for your company. It's a win-win for you and for them.

6.Operate a lean business

Minding your cost structure is a basic, yet important strategy for establishing profitability and making your business more creditworthy. Keep inventory low, manage worker hours closely, and reduce staff during periods when business is slow.

7.Create a web site

Simply having a business web site impacts potential lenders. One of the first things a loan officer will do is go to the company web site and see what it looks like. Having an attractive looking web site gives the impression that your business is serious. In the 21st century, having a professional web site is no longer a luxury, it is a necessity.

8.Write a business plan
Few lenders will give money to a company that does not have a solid business plan. It provides a road map for your company for the short- and long-term. Be sure to include goals, strengths and weaknesses, and key points of differentiation. Most banks, which offer better rates through SBA loans and other financial products, are likely to insist that you have a business plan--especially if the business is a startup. It is equally important for expanding companies to have a business plan in order to secure additional funding. If this is indeed the case, be sure to update your business plan to reflect recent company successes.

Biz2Credit is hosting a webinar on Tuesday, Sept. 30 at 3:00 p.m. (EDT) designed to help Latinos, women, and any entrepreneur to increase their credit scores. Click here for details. Registration is free.