Does my business have a professional and trustworthy website?
What: A business website is a dedicated online platform that represents your company on the internet.
Why: Your professionally designed business website helps lenders learn about your business and verify your information.
Consequences: Without a professional business website, lenders will have to rely on potentially less accurate information that you likely have zero control over, when they run a check on your business.
Am I licensed to do business under the laws of the state and local governments?
What: Business licenses are official permits issued by government agencies that allow individuals or companies to conduct business within the government’s geographical jurisdiction.
Why: Lenders need to know that your business is operating legally before they can provide funding. Having the necessary licenses shows that your business is in compliance with local, state, and federal laws.
Consequences: Lenders may reject the loan application of a business operating without the necessary licenses, as it suggests a higher risk of default.
411 Directory Registration:
Can lenders locate my business on the official 411 Directory?
What: A 411 Directory Registration refers to having your business listed in the 411 directory assistance, which is a phone service used by individuals who need to find the contact information for a person or business.
Why: Lenders often verify a business’s legitimacy by checking if it’s listed in the 411 directory. A listing in this directory can serve as a form of business verification.
Consequences: Lenders may reject the loan application of a business that is not listed in the 411 directory, as it may appear less established or legitimate.
Do my last 6 months of banking history show positive cash flow?
What: A business bank account is a separate account that is used exclusively for business transactions.
Why: Most lenders require businesses to have a separate business bank account before they approve a loan. A business bank account helps separate your personal and business finances. This separation is important for tax purposes and helps maintain clear financial records.
Consequences: Without a separate business bank account, managing your business’s finances and cash flow can be more challenging, which could affect your business’s financial health and indicate a higher risk to lenders.
Can I provide Profit & Loss statements or a Cash Flow Forecast for my business?
What: Financial statements are formal records that outline the financial activities and conditions of a business. They typically include the income statement, balance sheet, and cash flow statement.
Why: Lenders review a company’s financial statements to assess its financial health and determine its ability to repay the loan. They look at profitability, cash flow, assets, and liabilities to make this assessment.
Consequences: Lenders require financial statements to process a loan application and without any demonstration of your business's finances, your loan application is likely to be denied.
Can I provide 2 years of Business & Personal tax returns?
What: Tax returns are official documents that a business files with the government, typically on an annual basis, declaring their taxable income, deductions, and tax payments.
Why: Lenders review a company’s tax returns to verify its income. This helps them assess the business’s ability to repay the loan.
Consequences: Lenders often require tax returns to process a loan application. Without them, the application is likely to be rejected.
Does my business have a "Low 5" bank rating or higher?
What: A business bank rating is a measure used by banks to assess the creditworthiness of a business based on its history with the bank. This rating is typically based on factors such as the average daily balance of a business’s bank accounts, the length of time the accounts have been open, and the frequency and nature of transactions.
Why: Lenders review a company’s bank rating to assess its creditworthiness. A good bank rating indicates that the business has managed its bank accounts responsibly, which can increase a lender’s confidence in the business’s ability to repay the loan.
Consequences: Lenders may reject the loan application of a business with a poor bank rating, as it suggests a higher risk of default. If the loan is approved, the terms offered may be less favorable as your business represents a higher risk for default.
What: A personal credit score is a numerical representation of an individual’s creditworthiness, based on their credit history.
Why: Lenders often check the personal credit score of the business owner as part of their decision-making process. A score of 680 or higher is generally considered good and indicates to lenders that you have a history of managing your credit responsibly.
Consequences: Lenders may reject the loan application of a business owner with a low personal credit score, as it suggests a higher risk of default.
Do I have accounts in good standing with at least 5 vendors?
What: Vendor lines of credit, also known as trade credit, refer to a type of credit that a business obtains from its suppliers or vendors.
Why: Vendor lines of credit can help a business build its credit history. If the vendor reports payment history to the business credit bureaus, timely payments can improve the business’s credit profile.
Consequences: Without vendor lines of credit, a business may have a thinner credit file, which could make it more difficult to secure a business loan.
Do I have a mix of Business Lines of Credit, Business Credit Cards, Installment Credit or other revolving credit, each in good standing?
What: Business Lines of Credit, Business Credit Cards, Installment Credit, and other revolving accounts are demonstrations that a third-party institution has extended credit to your business. Aim for a mixed total of 15 such accounts.
Why: A business that can manage a mix of credit accounts and relationships is less likely to default on a loan, and can show a healthy payment history.
Consequences: Without a mix of credit accounts in good standing, lenders may view your business as less established and more risky, as there is little to no evidence that you can manage debts over time.
Business Credit Score:
Is my business credit score an 80 or higher?
What: A business credit score is a numerical representation of a business’s creditworthiness, similar to a personal credit score.
It’s calculated by credit bureaus such as Dun & Bradstreet, Experian, and Equifax, and it’s based on factors like payment history, length of credit history, credit utilization, and the company’s size and industry. Business credit scores typically range from 0 to 100, with a score of 80 or higher generally considered good.
Why: Lenders review a company’s business credit score to assess its creditworthiness. A good score indicates to lenders that the business has a history of managing its credit responsibly, which can increase their confidence in the business’s ability to repay the loan.
Consequences: A low business credit score can limit a business’s financing options, as some lenders may not be willing to extend credit to unproven businesses with low scores.
Disclaimer: Content on this site is for reference purposes only and is not a substitute for advice from a licensed financial professional. You should not rely solely on this content, and Oxford Pierpont Capital, LLC DBA My Business Credit assumes no liability for inaccuracies. Always have your unique financial situation assessed by a licensed professional.