Traditional lenders might not approve many small business loans, but when they do, the terms and conditions tend to be more favorable. Because of this, most businesses might want to consider building their business credit while they are relying on alternative lending so that down the line they can try to qualify for a bank or SBA loan.
The first step is to get your paperwork in order, or you may be stuck relying on personal credit cards for business expenses. You can start building your business credit by using your company’s Tax ID Number or Employer Identification Number to get registered with business and credit bureaus. Make sure all your corporate records, state filings and business licenses are up to date — as well as your contact information for faster credit checks.
Once you have everything ready, it’s time to start building credit. While alternative lending is an important asset for business owners, it’s important to remember that any credit history takes time and planning. Entreprenuer.com recommends the following steps to help build and grow your business credit:
- Maintain your personal credit. New businesses do not yet have their own credit history, and evening existing businesses will experience personal credit checks—especially if you own more than a 20% stake in the business.
- Obtain credit early. Don’t wait until the last minute when you are desperate to make a repair or pay a bill. Apply for credit before you need it during start up to help build your credit history.
- Cultivate your credit. Use your credit to help establish good payment histories, and remember to keep those balances low. The length of your credit history is important, as is your history to meet your commitments and pay off your debts.
- Use multiple lenders. Every lender has different policies, and these policies can change with very short notice. By having credit lines through multiple lenders you will be better prepared in the case of sudden emergencies or short-notice account closures.
Learn more about business credit and how it can help your business with funding, contracts and more.
While banks are likely still feeling wary about small business lending because of the 2008 recession, their trepidation isn’t always the cause for a lack of loans. If business owners do their research, build their business credit and develop a relationship with a lender, they may be able to acquire a bank loan.
Help from the SBA
Some organizations work with lenders to help small businesses get loans. One of these organizations is the Small Business Administration (SBA). The SBA works with lenders and small businesses through their 7(a) loan program, where they guarantee part of a small business loan in the result the business owner defaults. This helps mitigate risk for the lender and can help small businesses get loans. Learn more about the SBA and their loan program in the video below.