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If building and growing a business is all about entrepreneurs being persistent in knocking on the right doors, the ability to get business loans for good credit is like having a set of master keys.
When you’re reaching out to potential sources of financing, for example, you have to do more than make a compelling business case about what you’ll do with the money. You need to have proof you’re worth the risk.
In some cases, you might have conducted market research that shows there is a legitimate demand for the products and services you’re offering. You might be able to show pending orders from major customers.
Nothing, however, beats a strong credit score, because it acts as a historical record of how well you’ve been able to honour previous debt obligations in a timely and responsible manner.
Business loans for good credit reflect the fact that a lender is able to trust you, which in turn allows you to be able to capitalize on opportunities to scale your company in ways that lead to long-term growth.
– Understanding what kinds of loans are available to help businesses like yours
– Learning about the differences in lender requirements
– Gathering all the necessary information to prepare your application
We’ll go over all these areas in this post to give you a head start.
Even before you started a business, you probably already became familiar with how lenders decide whether or not to let you borrow money.
Whether you’re trying to buy a car, a house or even just get financing to cover the costs of a small renovation, your credit score will be the first thing lenders check.
Although everyone has their ups and downs, your credit history measures the degree to which you’ve been consistent in your actions, or whether you’ve regularly made decisions that lead to serious financial repercussions.
Put yourself in the lender’s shoes for a minute: would you want to lend money to someone (or a business) that has defaulted on other loans in the past?
Is offering a sizeable loan to an entrepreneur that’s gone through bankruptcies a good idea?
If someone’s looking for financing but has been chronically late with payments to other creditors, should you say yes?
Good credit reflects the fact that positive financial habits, when consistently practiced, demonstrate reliability. That’s what every lender wants to see.
Many credit agencies use a scale that ranges from 300 to 850. The higher the number you score, the better your credit rating.
A perfect credit rating of 800 or more is rare, but even something in the 700 to 749 range will likely make it easier to qualify for many kinds of loans.
This means your business has already borrowed money and paid it back promptly, or that you’ve managed your line of credit, existing credit card payments and monthly bills in a responsible and timely manner.
Other factors that could negatively affect your rating include having tax liens on your business or civil judgments.
That said, there may be lenders from whom you can get loans for good credit in the 650 range. It all depends on where you’re applying.
Your best bet is to first check your credit score, then look at how various lenders define good credit before beginning the application process.
Every entrepreneurial journey is a little bit different. If you started off with strong financial backing you may have the capital you need for the first year of operation or more.
If you bootstrapped your company yourself, each growth milestone may be difficult or impossible to reach without some additional resources from a third party.
These are just a few of the common scenarios where getting a business loan with a high credit score could make all the difference in the world:
These are the “keeping the lights on” expenses such as renting an office, paying employees and suppliers. It’s probably where a lot of young businesses need financing, because often sales have not reached a level where they cover off everything that allows the company to continue running. These tend to be short-term loans, and if you want to keep your credit score high you’ll want to make sure you’re paying them back on the agreed-upon schedule.
Unlike a forward contract, the derivative offers customers the right, but not the obligation to exchange a set amount of currency at a specific rate. For businesses looking to reduce their foreign exchange risk, this can be an effective tool that doesn’t lock them into a specific contract, thus giving them flexibility to capitalize on market movements. They can also use these derivatives to “speculate” i.e. trade on the expectation that currencies will move a certain way. Ultimately, this allows them to make non-operating income separate from the normal profit they earn from their bread-and-butter operations.
Term Loans
You might have the best products and services in the world, but it won’t mean much if customers don’t know about them. Many companies under-estimate the costs of marketing and advertising, but it’s better to find the most appropriate channels to reach your audience first and then devise a budget accordingly. At that point, businesses with good credit can look at term loans to get the upfront money they need. As the name suggests, these loans are to be repaid over a fixed term, but you can negotiate it to span the time it takes to ensure the marketing you do truly drives demand and sales.
Small Business Administration Loans
Congratulations! You’re seeing enough success that it’s time to open a second location or expand into a new market. This can look a lot different than the days when you first launched your business. If you’ve keep a healthy credit score, an SMA loan can make business expansion more of a streamlined process. As with all the loans mentioned in this section, though, you’ll want to factor in not only repaying the loan principal but any additional fees and interest charged by your lender.
Most loan application processes will require not just your credit history but basic details such as your:
Don’t be surprised if lenders also want to see profit and loss statements, balance sheets and even your business plan, to show you’ve done the due diligence that marks a successful entrepreneur from one who might stumble.
While you may have a lot of this information up front, be prepared to answer any additional questions or to supply other details over the course of the loan application and approval process. Much like maintaining good credit, demonstrate your professionalism by being prompt in your replies and follow ups with lenders.
Conclusion
Good credit will take your far, but it’s no replacement for being thoughtful and thorough in researching your potential sources of business financing.
While this could have been a time-consuming and frustrating process in the past, the availability of information online allows both seasoned and novice entrepreneurs to develop a list of compelling options and alternatives for obtaining a loan.
Always look for something that’s affordable, with reasonable terms and low interest rates that allow you to honour any commitments you make. You’ve built a good credit rating so far – don’t do anything to jeopardize it.
