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Delancey Street is a premier small business lender, based out of NYC, that has helped broker 100's of millions in business loans. They are a pro, at making sure you get all of your financing needs satisfied.
- Over $200 million in funding secured
- Can handle low risk credit
- Handles all industries
- Handles high risk and low risk loans
Steps to Secure a Small Business Loan
Obtaining financing for your small business is not an easy task. Many financial institutions view small businesses as risky ventures, and putting together the first application can be daunting. It takes both mental and practical preparation, foresight, and wisdom. Here are some steps to help you prepare for a small business loan in order to have a painless loan application process.
Step 1: Analyze the available financing options
Before applying for a loan, it is essential to analyze your small business and determine the available financing options. Evaluate whether financing through a small business loan is the best option for your business. If so, assess which type of loan would be most appropriate for your small business. Consider options such as term loans, factoring or invoice financing, angel investment, small business loans, or credit cards. After analyzing each option’s pros and cons, you will be able to select the most suitable form of financing for your business needs.
Step 2: Determine your credit rating
Lenders loan money to small businesses with the assumption that business owners will pay back borrowed funds. To ensure lending responsibility, they will evaluate your financial reputation based on your credit score. The higher the credit score, the more willing lenders are to approve your loan. Thus, your credit score influences the decision to approve your loan request, as well as how favorable the loan terms are likely to be.
Your personal and business credit scores will affect the approval of your loan request. These two scores contribute significantly to the decision-making process.
Business Credit Score
During the first years of operation, many business owners mix personal accounts with their business accounts, posing problems when filing tax returns or applying for a small business loan. Setting up a business account as soon as the business becomes operational ensures a separate business credit score is created. Building separate credit ratings has several distinct advantages over mixed personal and business credit reports.
A business credit rating allows you to have a credit report that shows good payment history. The report, used by credit reference bureaus, creates a business credit score showing your financial responsibility. Additionally, the data reveals the creditworthiness of your business.
The three credit referencia bureaus – PAYDEX, Equifax, and Experian use different formulas to calculate your credit score, but they all consider your ability to pay loans and small business credit on time. Keeping up with timely payments creates healthy credit scores across all scales.
Personal Credit Score
Although it’s highly recommended to separate business accounts from personal accounts, most lenders will look at both when evaluating small business owners. They are closely related, and managing finances effectively in both arenas directly contributes to better credit scores.
Paying bills on time plays a key role in boosting your personal credit score, as well as contributing to growth opportunities for your business. However, there are common mistakes business owners make that negatively impact their credit ratings; keeping an outstanding balance or having high credit utilization rate. These two factors can affect both personal and business credit scores.
Step 3: Ways to improve credit score before making a loan application
Before seeking financing through lenders, ensure you access your credit report from one of the three credit bureaus. The Fair Credit Reporting Act enables you to obtain free credit reports. If you have exhausted this option, many other alternatives can assist you in acquiring a report. Business owners can also access credit reports from specific reporting services like CreditSignal or Nav websites. Once obtained, use the following tips to increase your credit score:
Check the report for errors
Sometimes trades or accounts that may raise your credit score may not be reflected, negative activity is reported, or accounts in the report arent yours. Report any errors in your report so that your score can get positively impacted.
Check if you have past due debts
Late payments contribute negatively to your credit report. Any overdue debts go hand-in-hand with your credit report as well as the amount owed. Contact the creditor, settle the debt as soon as possible and request a goodwill adjustment to ensure timely payment achieves the desired impact.
Pay all tax liens
State or federal tax liens can negatively impact scoring. Reach out to the relevant department in order to work out a payment plan or clear the lien altogether.
Step 4: Maintain a good credit score
Maintaining good financial habits is vital to secure lending, today and down the road. Start by always paying bill on time as this contributes greatly to a perfect credit score. Utilize wise credit utilization rates, of only using about 30%of all credit available. A low utilization rate shows that you do not rely solely on financing your needs through loans. Unless necessary, avoid closing accounts after finishing loans taken from them.
Diversifying credit mix investments could mean buying goods on credit, others on installment or even opening another credit account instead of using your credit card. However, avoid opening many more accounts as it might impact negatively. Consider hiring a private monitoring company to monitor everything, or use credit bureaus’ monitoring companies that will update you regularly at less than $20 for better decision making.
To sum up, obtaining a loan for small businesses is a hectic process. Due diligence, however, can ease the process by considering every available financing option before picking one. This should be followed by focusing on improving the credit score. Scores hugely impact the ability to borrow money and favorable credit terms one gets. Always stay ahead of your finances, keeping accounts organized and track past due debts payments help maintain a healthy credit score across the board.
Table 1: Financing Options
|Term loans||Low-interest rates; long repayment period; fixed interest rate||Lengthy approval process, requires excellent credit score and collateral|
|Invoice financing||Fast approval process||High fees and interest rates|
|Angel investment||No repayment required||Investors gain partial ownership of the business|
|Small business loans||High loan limits available||Strict qualification requirements|
|Credit cards||Instant access to funds; ability to earn rewards points or cashback||High-interest rates and fees; limited credit availability|
Table 2: Ways to Improve Credit Score
|Check the report for errors||Ensures accuracy of your credit score|
|Check if you have past due debts||Resolves late payments that impact your score negatively|
|Pay all tax liens||Clears penalties and negative credit reports|
|Keep the balance down||Shows responsible use of credit|
|Keep a low utilization rate||Shows low dependence on credit|
|Diversify your credit mix||Creates a healthy mix of investments|
|Consider using a credit monitoring service||Helps you keep tabs on your score and informs future financial decisions|
Table 3: Credit Scores
|High credit score||Greater possibility to obtain business loans; positive lending term results in the long run|
|Poor/No credit score||Impossibility to access most loans; high-interest rates due to the risky nature of small businesses|