business-loan

Can You Get a Business Loan with Bad Credit?

by Credit

Let’s say you’ve identified an opportunity for your business. It might be a bulk deal on inventory, a necessary equipment upgrade, or a great space for a second location. There’s just one problem: You don’t have the cash available to take advantage, and you have bad credit.

But is all hope lost? The short answer is no. Your options, however, may be limited. The trick is deciding the best choice for your needs from a slim selection.

Typically, an entrepreneur with good business credit (and good personal credit) can choose from a wide range of small business financing options. They might apply for an SBA loan, or a line of credit with generous repayment terms.

If you have bad or little credit, however—and there are many reasons why that might be the case—you’ll need to take a two-pronged approach. The first step is to find what makes sense among the small business loans available to you; the second is to work toward improving your credit so you can get a better deal the next time around.

Let’s go through the basics of business credit, what bad business credit affords your business when looking for a loan, and how to work on your score.

What is business credit?

In addition to a personal credit score, most established businesses have a business credit score, as well.

Your business credit score is a number (represented most often, but not always, on a scale from 1 to 100) that takes into account factors like your credit utilization score, payment history, length of credit history, public records that include bankruptcies and judgments, and company size.

Different business credit bureaus will take different factors into account and weigh them differently, so your number can vary across reports.

This number tells lenders and creditors whether they can trust your business to repay a loan. If your score is good (above 75 on the 1 to 100 scale), then they’ll be more willing to extend you a loan with favorable repayment terms. If your score is bad (typically below 50), then they’ll be much less likely to do so.

There could be a few reasons why you have a poor business credit score. Maybe you haven’t been trying to build it up by making payments on a business credit card, or your last business venture struggled and you failed to make payments to vendors. Your score follows you, so even if your newest business is growing and successful, you’ll still need to contend with issues stemming from your score.

What business loans can I get with bad credit?

If you have a bad business credit score, the elite business loan options likely won’t be available to you. The same goes for bad personal credit. Most SBA loans products, for example, are only available to business owners with excellent personal and business credit.

Depending on a few factors, however—such as the consistent profitability of your business and your relationship with your lender—you may still be able to qualify for an affordable loan product.

Here are your options for business loans you can still get with bad credit:

Short-term loans

Today, many business owners can qualify for a short-term loan through an alternative or online lender. These loans are typically paid off within 3 to 18 months (as opposed to 3 to 10 years, which is standard for long-term loans) via weekly or even daily payments.

The drawback to short-term loans: They are expensive, especially compared to long-term loans. They typically have high APRs, and the frequency of payments means your cash flow could be hampered if you’re not careful. If you need a loan, however, and you need it quickly, you can sometimes get approved for these loans in as little as one day.

Short-term lines of credit

A short-term business line of credit is typically a “revolving” form of credit: Like a credit card, you have a pool of funds you can draw from as needed, paying back each draw individually, without needing to reapply each time as you would with a loan.

Again, like loans, short-term LOCs come with higher APRs and shorter repayment terms than long-term LOCs, making them a flexible but more expensive option than what you could get with good credit. For both short-term loans and lines of credit, the lender is willing to take on more risk in exchange for your frequent payments with high interest.

Invoice financing and factoring

If you are waiting on clients to pay off your invoices—and find that constantly doing so weighs on your cash flow and affects the bottom line—you can actually use those outstanding invoices to access immediate capital from lenders.

The invoices act as collateral on a cash advance: Lenders typically offer you 85 percent of the outstanding invoice amount upfront, then supply the remaining 15 percent once the customer pays your invoice in full. A lender might charge you a flat fee (typically around 3 percent), and then an additional percentage point each week that the invoice remains unpaid.

Similarly, some lenders also offer invoice factoring, where you essentially sell your invoice to the lender for a lesser total amount, and they take over the collections process from your customers. You’ll receive less money than for invoice financing, but your obligation to recoup what’s owed is gone. (On the other hand, customers may find it unsettling to deal with this new third party).

Some invoice financing lenders will review your credit, and others won’t. Either way, they probably won’t ask for personal collateral, as the invoice itself is sufficient collateral.

Equipment financing

If you’re seeking financing for a very specific need—namely, to buy new equipment—then equipment financing may be the perfect solution.

With equipment financing, a lender or even the seller of the equipment extends you the money to buy what you need, with the equipment itself serving as collateral. You then pay that sum back, plus interest and fees, over time. Then, once you pay off your loan, the equipment is yours. Because this type of loan is self-collateralizing, lenders may be more willing to approve applicants with less-than-stellar credit.

Business credit cards

Most business owners should have a business credit card, and not just for the rewards and perks that come with many cards: They can also act as a small, short-term form of financing.

If you think about it, putting a purchase on a credit card is like taking out a small loan for the price of that item, which you have a month to pay off without accruing interest. Depending on your credit card rates—which may be high if your credit score is low—you may also find paying off your purchases over time to be an affordable option.

If you have bad credit, you may need to start with a secured business credit card, where you put down a cash deposit to “secure” the card. After some time spent responsibly using your secured card, your score should improve to the point where you can use an unsecured, or traditional, business credit card.

Merchant cash advance

You can also look into merchant cash advances, where lenders advance you cash, which you pay back—plus fees—from daily credit card sales. MCAs, however, are notoriously expensive, and should only be considered an absolute last resort for small businesses.

How to improve your credit

Whether your personal or business credit is an issue preventing you from obtaining better loan options, your way forward is simple: Engage in responsible spending practices and demonstrate that you’re now a better option to lend to.

Getting a credit card (even an unsecured one that reports to the credit bureaus) is a great way to get started. Use it to make small purchases that you can pay off on time, every month.

Little by little, your credit score should improve, and you can start taking on better loan options as needed. Paying those back on time as well will continue to improve your score, until you can qualify for the kind of lending options that were previously out of reach, such as long-term loans, lines of credit, and SBA loans.

When it comes to getting a business loan, the door is rarely completely closed to entrepreneurs and small business owners. Though you may have fewer options with bad credit, the right financial solution can help you on the path to growth. If you have the cash flow and profitability to take on one of the above business loans, do so responsibly and you’ll see your credit improve month after month.

Source: startupnation.com

businesscredit-needs

4 Things You Need to Know About Establishing Business Credit

by Credit

Establishing a strong business credit profile is an important factor in how a business’ creditworthiness is evaluated when applying for a small business loan. Granted, different lenders have different thresholds for creditworthiness, but the business owner with a good credit profile will have more options available than a business owner with a weak profile.

With that in mind, here are four things you need to know about establishing business credit:

Your personal credit score matters

I know your personal credit score doesn’t say anything about how your business meets its financial obligations, but it does tell a potential lender a lot about you and how you meet your obligations. For most small business owners, your personal credit score is always going to be part of any creditworthiness evaluation.

Although they don’t all require the same standard, your personal credit score often acts as a go/no-go metric lenders look at to determine if they will even consider your business loan application.

For example, most banks prefer to work with business owners with a personal score in the 700s, and typically won’t go any lower than 680. The SBA’s minimum threshold is a little lower. They will work with borrowers who have a score of around 650. Many online lenders have a threshold of around 600, but some alternative lenders will even go as low as 500.

Even if a lender will accept a lower personal credit score, there will usually be a cost to the borrower. The lower your score, the more you will likely pay in interest and the less favorable the terms will be. The lowest rates and best terms are typically reserved for borrowers with the best credit scores.

We saw this even with the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) earlier this year. Many borrowers complained about loan applications that were rejected because they didn’t meet the acceptable threshold. This happened despite the fact that the SBA was making allowances for many small business owners with less-than-perfect credit profiles.

Building a strong personal credit score starts with regular (read monthly) credit monitoring. It’s human nature to positively impact the things we pay the most attention to, so if you want to build a strong personal credit score, you need to pay attention to it.

Your business credit is really a collection of scores

Although there are individual scores associated with business credit, like the D&B PAYDEX Score or Experian’s Intelliscore, your business credit is really the reflection of a collection of scores. Most business credit profiles will include information about how your business does compared to other similar businesses in your industry, of your size, and your annual revenues.

The business credit bureaus also evaluate your business based upon credit risk and often make recommendations about the amount of credit they would offer your business based upon all these factors—with individual scores, or ratings, that reflect how your business stacks up in these categories.

Business credit is one of the most misunderstood things a business owner needs to pay attention to. And like your personal credit, it’s also important to monitor your business credit if you want to make a positive impact in what’s reflected in your profile. Fortunately, building business credit isn’t difficult, but it does take effort and doesn’t just happen.

Slow and steady wins the race

There really isn’t a shortcut to building a strong business credit profile, but following good credit practices over time will improve your score in relatively short order. That being said, accessing business credit can be a challenge for idea-stage or very early-stage startups.

Nevertheless, there are some things you can start doing right now that will help you build a good business credit profile:

  • Make sure the information the business credit bureaus have about your business is accurate and up-to-date: In addition to the credit history reported to the bureaus by your creditors, there is information culled from the public record included in your profile. For example, your business name, address, the industry you’re in, along with other publicly available information that can be searched at the county or state offices where your business is located. Something as simple as a misclassification of your business could put you in what a lender might consider a riskier industry than what you are actually in, making it more difficult to qualify for a small business loan or other type of business financing. Regularly reviewing your profile to ensure that everything is accurate is important. All of the bureaus have processes for correcting verifiable errors.
  • Establish business credit accounts: I’ve often heard the complaint from business owners, “It takes credit to get credit and I can’t get any credit.” While it may be true that it’s difficult for a new business to walk into the bank and get a small business loan, there are other ways to establish a business credit profile.
  • Establishing business trade accounts with your suppliers is often available simply for the asking. If they report your good credit history to the business credit bureaus, these 30-, 60-, or 90-day credit accounts will help you build a robust business credit profile.
  • Business credit cards are another great way to build your profile. Because most credit card providers lean heavily on your personal credit score, it’s often easier for a business owner with a good to excellent personal credit history to qualify for a business credit card. And, if they report to the business credit bureaus (some don’t, so it’s worth asking), they will also help you build your business credit.
  • Make timely periodic payments: In the same way making timely payments on your mortgage and auto loan helps you build a good personal credit score, making each and every payment on time will help you establish a strong business credit history. This applies to your business lease (if you have one) and any utility bills that are in the business’ name.

Your business credit profile is public

Unlike your personal credit score, your business profile is publicly available to anyone who may be interested and willing to pay for the privilege of reviewing your business credit history. This could include any potential creditors as well as competitors or other interested parties.

What’s more, it’s possible for two businesses with similar names and similar addresses to sometimes be confused. For example, Joe’s Bar and Diner could easily be confused with Joe’s Restaurant, if they are in the same area with similar-looking addresses. The same level of data validation that goes into updating your personal score isn’t part of the process for business scores—making it even more important to make sure your profile is accurate.

This is one reason why I am a fan of data validation within the small business loan process. It gives them the opportunity to confirm that you are who you say you are and will make the application process easier for you.

A strong credit profile is a valuable asset

Even the smallest startup can benefit from establishing a business credit profile—particularly if you plan on growing your business. The sooner you start to build your business credit history, the better for you and your business.

Source: startupnation.com

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4 Ways to Work on Strengthening Your Business Credit in 2022

by Credit

You have big goals for your startup in 2022. Growth, higher profits and a better online presence might be at the top of your list. However, if building your business credit isn’t part of your plan, you may be overlooking an important milestone.

Your business’ credit can play a significant role in the long-term success of your company. If you’ve ignored this fact for a while, you’re not alone. Entrepreneurs are notoriously busy. Building positive business credit is one of those tasks that tend to get put off for later.

Yet for the sake of your business, and even for the sake of protecting your personal credit, it’s time to stop procrastinating. Here are four smart tips to help you work on your business credit in 2022.

Four ways to work on your business credit

Dot your I’s and cross your T’s

Before you begin checking your commercial credit reports or trying to establish credit in your company’s name, it’s a good idea to make sure that your business is set up correctly. In addition to profits and cash flow, a properly set up business is a crucial part of becoming credible in the eyes of lenders, vendors and service providers.

If your business has been up and running for a while, you’ve probably already completed some of these key initial steps. For the rest, consider making yourself a to-do list.

You might aim to complete at least one of the following tasks each week:

  • Incorporate or form an LLC with your state
  • Apply for an Employer Identification Number (EIN) from the IRS
  • Open a business bank account in the company’s complete legal name (as it was filed with the state and IRS). Use the account regularly to pay bills
  • Set up a dedicated business phone line in your company’s name. Make sure the number is listed in the directory
  • Get a DUNS number

Once you’ve completed the initial steps above, keep going and consider adding a few additional tasks to your to-do list as well.

Check your commercial credit reports frequently

Just like your personal credit reports matter when you apply for a loan or credit card account, your commercial credit reports (Dun & Bradstreet, Experian, and Equifax) are likely to be considered when you apply for financing or services for your company.

For this reason, it’s a good idea to create the habit of checking your commercial credit reports often, preferably on a monthly basis. Credit reporting errors happen. When they do, those mistakes can potentially harm your commercial credit reports and scores.

It’s up to you to monitor your startup’s credit reports and make sure that the information contained there is accurate. If you discover incorrect information on your reports, you can and should take action.

Learn more about how to dispute credit reporting errors with the commercial credit bureaus here:

Establish vendor accounts and open a business credit card

Building strong business credit begins with establishing positive tradelines on your commercial credit reports. A few vendor accounts with net-30 terms can be a smart place to start if you do not already have established credit in your business’ name.

Remember, before you open an account you should ask the vendor whether they report to the commercial credit bureaus. You can also check out these three vendor accounts which could help you establish some credit for your company.

Another way to potentially build commercial credit is to open a business credit card in your company’s name. Keep in mind that, although you may be applying for credit in your company’s name, you’ll most likely be required to provide a personal guarantee to secure the new account.

Understand how commercial credit scores are calculated

Of course, simply opening a new vendor account or business credit card alone isn’t enough to build great business credit scores. You will need to manage your new accounts properly or they could backfire and hurt your business credit scores instead of helping them.

Each commercial credit bureau has its own method of credit reporting and scoring. As a result, there is no clear-cut answer to the question, “How are business credit scores calculated?”

Nonetheless, there is some key information which is typically important.

Here are some of the factors which are often considered when your business credit scores are calculated:

  • Payment history
  • Length of credit history
  • Outstanding debts
  • Public records
  • Credit utilization ratio
  • Industry risk

Strong business credit can be essential to the growth and long-term health of your business. It can give you an edge, which your competitors might lack. Make a concentrated effort to follow to steps above, and you could set your business up for more success in 2020 and the years to come.

Source: startupnation.com

business-credit-scores-matter

Which Business Credit Scores Matter the Most?

by Credit

Not all credit scores are created equally. You likely already know that you have a personal credit score; it’s what you need to buy a car, get a mortgage, credit card, or even pass a background check. You probably also already know that there are three bureaus (Experian, Equifax, TransUnion) that report your credit scores.

What you may not already know is that your small business has a business credit score. Just like your ability to pay your credit card bills and mortgage payments on time factors into your credit score, your ability to handle your business’s debt and accounts payable, among other factors, all go into your business credit score.

Just like personal credit scores, business credit scores come from multiple reporting bureaus (Dun & Bradstreet, Experian, Equifax), and can help you get better financing. And just like personal credit scores, business credit scores are not all created equally.

Here’s are the three credit scores that matter to business owners

Personal credit score

As you learn more about business credit and get more into the details of potentially building or growing your profile, be sure not to neglect your personal credit. In fact, if you’re just starting a business, you may have to lean more on your personal credit profile to get startup financing.

If you’re years into your business and your business credit score is less-than-stellar, some services may take your personal credit score into account. Taking care of your personal credit score can bail you out if you let your business credit fall apart.

By keeping things up on the personal credit side of things, you can have a great plan B for your business and stay on track for your personal goals. Your personal credit score is reported on a scale of 350 to 850, and you’re entitled to one free credit report a year for you to know what you can work on or fix in order to have a healthy profile.

D&B PAYDEX® Score

The D&B PAYDEX Score is reported by Dun & Bradstreet. With a scale of 1 to 100 (100 being a perfect payment history), it’s a little simpler than personal credit to gauge where you’re at off the bat. While your social security number is associated with your personal credit and your EIN (or employer identification number) with your business credit, you also need a D-U-N-S number to access your D&B PAYDEX Score.

With the special sauce that Dun & Bradstreet uses, paying your bills on time (and especially early) is key and can work in your favor. If you only pay your bills on their due date, the highest rating you can get is 80, while 100-rated payments are those that are made 30 days early. If you want a credit score that takes into account your early payments, the PAYDEX score is one to keep an eye on.

FICO® LiquidCredit® Small Business Scoring Service℠

While the PAYDEX score is more concerned with how promptly you make your payments, your FICO® LiquidCredit® Small Business Scoring Service℠ (SBSS score) can help you get some more favorable financing.

While having any of your credit ratings high is always excellent, the SBA (Small Business Administration) requires a SBSS score to consider your business for an SBA loan. SBA loans can, depending on the amount, come without much required collateral and with more desirable rates and terms.

PAYDEX scores are rated on a scale of 1 to 100, and the SBSS score ranges from 0 to 300. Most lenders set their minimum score at 160, but the SBA reportedly sets their minimum at 140. By working to get your score above the minimum, you can open up your ability to get solid financing and grow your business.

Intelliscore PlusSM from Experian

Experian’s Intelliscore attempts to determine the likelihood of serious delinquency by your business over the next 12 months, all based off the business data available. Just like the PAYDEX score, it’s measured on a 1 to 100 scale, a score of 1 being the highest risk, 100 being the lowest.

The Intelliscore is determined by over 800 commercial and owner variables, including tradeline and collection information, recent credit inquiries, public filings, new account activity, key financial ratios and other performance indicators.

If you can come to your lender with a solid Intelliscore, you can potentially put their minds at ease and secure more favorable rates and terms than you would otherwise.

As you can see, not all business credit scores are created equal. Now that you know about the different business credit scores from various reporting bureaus, find the best business loan for your startup depending on your credit score.

Source: startupnation.com

creditcard

7 Reasons Every Startup Needs a Business Credit Card

by Credit

A business credit card is one of the most important financial tools in any startup’s toolbox. It’s way more than just a personal credit card that you use for business dealings—it’s a unique, flexible form of financing that also delivers rewards and perks specific to what’s important to you and your business.

If you’re starting a new business, don’t wait until you’re well-established to start using a business credit card. Get going right away, because as the following eight reasons will explain, the benefits of doing so are immediate, and will set you up for success down the line.

Separate business and personal spending

When you start your business, you’ll need to make purchases. You’ve already got a personal credit card—why not just put these expenses on there and rack up the points?

Because, for several reasons, you’ll want to separate your business and personal spending from the get-go.

Logistically, separate business expenses make it easier to track what you spend on your business (rather than every transaction getting mixed in with your charges for movie tickets and dog food, or whatever else you buy in your personal life). Come tax season, you (or your bookkeeper) will be thankful that you didn’t co-mingle every business and personal transaction onto a single account.

Protect your personal assets from legal liability

Additionally, there are legal implications to not separating your expenses. If your business is an LLC, partnership, S-Corp or C-Corp, you won’t enjoy any of the legal or liability protections to your personal assets if your finances aren’t actually divided. That means you could be personally liable for any lawsuits that call for damages against your business.

Help build business credit

While the above reasons may have already convinced you to get a business credit card, it’s true that you can also avoid headaches and protect your assets by opening up a business checking account. So what makes getting a business credit card, in particular, a good idea for startups?

For one, it helps build up your business credit score. A business credit score is an entirely different metric than a personal score, based on different factors—such as how responsibly you use a business credit card. By building up your business credit, you create more affordable financial possibilities for your business in the future, from negotiating with vendors to obtaining more affordable terms on a long-term business loan.

Some business credit card companies also report business activity to personal credit bureaus, which means you can improve your personal credit, as well. Conversely, you may also damage your personal credit if you aren’t careful.

Provide higher credit limits

Because credit card companies recognize that a business will probably spend more than an individual does, business credit cards typically have a higher spending limit than personal ones. That means you likely won’t have to max out several credit cards to make all of your business purchases—which is bad for your credit utilization ratio.

Speaking of your credit utilization ratio, a higher credit limit means a lower ratio, which also helps improve your overall credit score.

Provide a financial safety net in case of emergency

Startups constantly have to battle to balance their cash flow, as inconsistent revenue is coupled with unexpected purchases. Startup costs are so variable, you can’t always depend on a lump sum of savings to cover them.

Enter your business credit card, which can be used to cover surprise expenses, while giving you time to move funds around to pay them off by your next payment period. Only a business line of credit—which can be harder for startup businesses to qualify for—is as useful in a financial pinch.

Works as a source of low-cost financing

In many ways, a credit card is similar to more traditional forms of “business financing,” such as a business loan or line of credit. You are essentially borrowing money now in order to pay it back later, sometimes with interest.

Some credit cards, however, can essentially act as low-cost (or even free) financing, thanks to introductory periods with a 0 percent APR. Not every credit card offers this, but if you qualify for one, you essentially get a small loan with no interest payments for the life of the offer.

Extend lucrative rewards and perks

A business credit card, similar to a personal credit card, also offers users a number of rewards and perks that can either offset some of the cost of your purchases, or make running a business more enjoyable thanks to upgrades and benefits.

Every business credit card is different, but many give you points or cash back on most purchases. Some will either specialize in certain categories (i.e. airfare, office supplies, social media) that give you point multipliers, while others allow you to pick and choose which categories give you the most points back (and thus the most bang for your buck).

Business credit cards can also provide cell phone insurance, car rental and travel insurance, subscriptions and discounts on business tools like G Suite and Salesforce, and other travel perks like airport lounge access and seat upgrades.

Essentially, every time you make a purchase with a business credit card, your business gets a little discount, and that discount may turn into a sizeable one if you use it effectively.

Key takeaways

As an entrepreneur, your financial options are limited. You might have your personal savings, some investment from your inner circle, or perhaps a small business startup loan. Owning a business credit card gives you another layer of financial flexibility, while simultaneously building up your financial resume and acumen for the future. Couple all this with some valuable rewards and perks, and it’s easy to see why every startup needs a business credit card.