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How to Improve Business Credit Score for Loan Approval

How to Build Business Credit and Increase Your Chances of Approval

Written by: Joe Valeo

August 7, 2023

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How to Build Business Credit and Increase Your Chances of Approval
7 min read

When it comes to loan approval, lenders want to make sure they are lending money responsibly. To determine whether you are a responsible borrower, lenders will often look at your credit history and score. If your credit score is low or nonexistent, it can be difficult to secure a loan with good terms. This is why it’s essential to understand how to build business credit.

Building solid business credit is vital for access to capital, and the good news is that it’s possible with some effort on your part. In this blog post, we will discuss how to establish and maintain strong business credit so you can take advantage of financial opportunities when they present themselves. We’ll share tips and advice about using both manual and automated methods targeted at providing you with the best chance of approval for any finance-based application.

Business credit is different from personal credit in that it reflects the financial health of your business rather than your individual finances. To build business credit, there are several steps you should take.

How to Build Your Business Credit

A strong business credit profile can unlock a world of financial opportunities for your company. But building your credit standing isn’t as simple as paying your bills on time. In fact, it requires a careful strategy and continuous attention to your credit performance. The good news is that anyone can improve their business credit score, whether you’re starting from scratch or working to recover from past credit mistakes. By taking the proper steps, you can strengthen your credit profile and boost your eligibility for loans, credit cards, and other forms of business finance. Ready to dive in? Let’s explore the essential tips and tactics for improving your business credit score.

Establish Your Credit Profile

The first step in building business credit is establishing a profile with one of the major commercial bureaus such as Experian or Dun & Bradstreet. This involves submitting a company profile and a few other supporting documents.

Finance profiles are an essential part of any business plan. They provide business owners with crucial information about their financial situation, empowering them to make informed decisions about their business growth. By highlighting areas that need improvement, finance profiles can suggest effective strategies to optimize your finances.

Here are some supporting documents that can help you in creating a business finance profile:

Balance Sheet: Assessing a company’s financial health can be done through the balance sheet, which is an important tool to consider. It would be best if you focused on the company’s assets such as cash and investments, and liabilities like debts and leases. Compare these to industry standards to determine whether your company is doing well or not. Use this information to ensure that your company can cover its short-term liabilities and maintain its regular operations.

Income Statement: The income statement plays a vital role in assessing a company’s financial well-being. It highlights gross and net income, along with the net income margin, which is a crucial aspect to consider. These figures reveal whether the company is earning adequate revenue to counter its expenses and to maintain a healthy profit margin. Understanding these metrics can help you evaluate your company’s financial sustainability.

Revenue and Spending: Developing a solid business finance profile starts with understanding your company’s revenue and expenses. In analyzing this information, you can pinpoint areas where your company is overspending and identify potential opportunities for increased revenue. Keep a close eye on how your revenue and expenses are changing over time to stay ahead of potential financial challenges and identify trends that could impact your business.

Debt and Equity: To set your business up for growth and expansion, it’s important to have a clear understanding of the company’s debt and equity levels. This crucial information will help you assess whether your business has the necessary resources to take on additional funding and will ultimately determine the feasibility of your expansion plans.

Open Business Credit Lines

After you have established your credit profile with one of the commercial bureaus, you can begin opening business credit lines to help build your overall creditworthiness. Examples of business credit lines include vendor accounts, bank loans, and store cards. When applying for any type of account or loan, make sure it’s reported to the major commercial bureaus so that it can be reflected in your business credit score. Consider exploring these options for lines of credit:

  • American Express
  • Lending Tree
  • On Deck

Understand the Different Types of Credit

Credit is an essential financial tool that can help improve your financial standing. It comes in different types, and each has its unique features and requirements. Understanding the various options is critical to finding the best fit for your financial needs. For businesses, credit can help finance expansion and take advantage of opportunities. Business loans are one such option that offers varying interest rates and repayment periods. Beyond business loans, it’s essential to understand other forms of credit, including revolving lines of credit and installment loans. Knowing the various credit types will help you make informed decisions when looking for financial backing and offer varying interest rates and repayment periods. Beyond business loans, it’s essential to understand other forms of credit, including revolving lines of credit and installment loans. Knowing the various credit types will help you make informed decisions when looking for financial backing.

Why Should I Seek Out Diverse Sources of Credit?

When it comes to small business loans, seeking out diverse sources of credit can be a smart move. Relying solely on one lender or type of loan can limit your options and potentially harm your credit. By diversifying your sources of credit, you can potentially access better interest rates, terms, and options that fit the unique needs of your business. Some examples of diverse sources of credit could include credit cards, lines of credit, SBA loans, or even crowdfunding. Of course, it’s important to carefully consider any loan option and ensure it aligns with your business goals and financial situation. However, exploring diverse sources of credit could ultimately provide the working capital your business needs to thrive.

Pay Your Bills on Time

Paying bills on time is an essential part of managing your finances responsibly. Being prompt with your payments not only keeps you in good standing with your creditors, but it also helps you avoid late fees and interest charges that can quickly add up and make it challenging to stay ahead. This is especially true when it comes to business loans, where timely payments can affect your creditworthiness and potentially limit your access to capital in the future. To ensure that you never fall behind on your bills, consider setting up automatic payments, keeping a schedule of payment due dates, and monitoring your accounts regularly for any discrepancies. By doing so, you can safeguard your financial health and maintain a good relationship with your lenders.

Take the time to establish business credit and manage your accounts responsibly, you can increase your chances of loan approval and secure loans with better terms. Ultimately, building good business credit takes time and dedication but is well worth the effort in the long run.

About the Author

Joe Valeo

Joe Valeo has over 37 years of experience in finance and sales. His leadership and expertise have served financial services and alternative working capital organizations such as LendingPoint and Capital Access Network, where he oversaw the growth of more than $5 billion in capital for small businesses. He also led sales strategy and management at First Data Corporation and Visa. Joe oversees SmallBusinessLoans, where he strives to make lending more accessible for small business owners.

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