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CREDIT
INSIGHT INTO BUSINESS CREDIT AND FINANCING
If your company is not in compliance with the above and several other industry specific compliance requirements, then your business will be viewed as a high risk of default. Lenders use whatever trend data is available to try and lower their risk of loan defaults so that their portfolios have a higher value on the secondary market. Our system shows you how your company can be viewed as a low risk of default. Each loan a lender makes must meet a number of preset criteria so that loans can be grouped with other loans and sold. Business owners seeking business loans must know a lender’s preset criteria in order to get approved and there are just too many variables for each lender. Our system takes the guesswork out of it for you and guides you every step of the way so that your company maximizes its compliance and lending potential. Our system will check your company’s NAP validation and 150 critical compliance requirements and guide you through the compliance process. If any part of your company is out of compliance our system will guide, you through the critical compliance requirements so your company fulfills the compliance requirements. Business credit scores range from 0 to 100.
A Business Credit Score of 70 indicates your business pays all its creditors on time as agreed (within terms). Paying 10 days early will result in scores in the 80’s range while paying an average of 10 days late will put your business scores in the 60’s range. To optimize your business loan opportunities, you want a business credit score of 75 or higher which is equivalent to a 750 personal credit score.
BUSINESS-TO-BUSINESS CREDIT
Even though there are over 500,000 businesses extending credit to other businesses, there are less than 5,000 of these businesses that currently report payment histories to the business credit reporting agencies. Inside our system we give you access to over 3,000 business-to-business vendors that will extend credit to your business and we tell you which business credit bureau they report to. Businesses that extend credit lines for their products and services to other businesses exclusively use business credit scores to determine the approval, amount, and term. To avoid having to personally guarantee each of these credit lines, your business should have at least 10 current business credit tradelines and a business credit score of 75 or above makes the difference.
BUSINESS CREDIT CARD
You can obtain a business line of credit and not use it for 3 or 4 months and it will not show up until the reporting cycle after you have used the line of credit. Business credit cards only report to your business credit profile when you use the credit card, unlike personal credit where all your tradelines are reported each month whether you have used them that month or not. When your business receives credit lines from Net 30, 60 or 90 day vendors, it is very important to use those credit lines every month and pay them off within the terms to avoid gaps in your business credit reporting.
CORPORATE FINANCING
When trying to secure corporation only financing, lenders will look at comparable business credit scores, reporting tradelines, bank rating, revenue, years in business, debt to income ratios, balance to limit ratios, industry type, debt acceleration and more. They want to see if anyone has already loaned a comparable amount to your company and how well you have managed the line of credit. Ideal Business scores of 75 or above, at least 10 reporting tradelines, a minimum of a Low 5 bank rating, $35,000 or higher monthly revenue, 3 years in business, less than 45% debt-to-income ratio, and less than 45% balance-to-credit limit used.
BANK RATING
Your business has a bank rating that lenders will use to determine your ability to service debt. A Low 5 rating or above is optimal when trying to acquire business loans or leases. Your bank rating is your average daily balance over the last 90 days. If your business has a “Low 3” that means there was only $100, $200, or $300 in your business bank account for the last 90 days to service debt at any given time. If you are asking a lender for a loan where the payment is $1,500 a month, a low bank rating will affect your ability to secure that loan. Lenders see that you do not have the ability to service the loan, and you will be declined.
BUSINESS CONTRACTS
If a business is seeking to do contract work, be it government or commercial contracts, its extremely probable your business credit will be checked during the award process. Those contractors with no credit history or poor history will be viewed as not having the ability or resources to complete the project. On the other hand, companies with excellent business credit history and access to lines of credit will be seen as much more professional, and likely to complete the project on time, and be higher on the award process.
COMPARABLE CREDIT
If your business has already received a loan in the amount equal to or greater than the amount you are requesting from another lender then you have comparable credit. If you want to borrow $50,000, has your business ever had a $50,000 loan before? If so, how did you manage that debt and did you pay it on time? Once your business has a comparable credit tradeline reporting by another lender, after about 90-120 days other lenders will notice and start extending similar amounts. A great way to get your first comparable credit reporting tradeline is to open a CD at a business lending bank and use it to secure a dollar-for-dollar business line of credit that reports to your business credit bureau. If it is $10,000 or higher, it puts you on another lender’s radar and offers will start flowing in.
OWNERS PERSONAL CREDIT
To maximize your company's lending potential, you may have to use your personal credit and/or be a personal guarantor on the line of credit. This can be the difference of receiving a $50,000 line of credit versus a $25,000 line of credit. Personal guarantee does not mean the business line of credit will be reported to your personal credit report, however using your personal credit can expedite and maximize your funding ability. Once you have established lines of business credit, you will be less reliant on your personal credit for business purposes. Business credit is required for business-to business lending and that can be done without the owner's personal credit. However, the owner’s personal credit is vital for any type of bank business lending such as term loans, credit lines, and credit cards. For bank lending, the owners should maintain a 720 or higher FICO scores, utilize less than 45% debt-to-income, and less than 45% balance-to-limit ratios on all revolving credit accounts.