7 Tips for Your Small Business Credit Application

As a small business owner, getting approved for a line of credit is not easy. You need to make sure your credit application has the best chances of securing a loan or line of credit. Follow the tips below to show lenders you’re creditworthy with a strong small business credit application.

Tips for your small business credit application

Are you considering applying for small business credit? There are several steps you should take to ensure you have the best chances of getting approved.

Prevent your small business from being denied a line of credit by following these seven tips.

1. Establish business credit

Lenders want to know you can pay your debts. You should establish some business credit before turning in your application.

Your first step to establishing business credit should be to separate your business and personal expenses. Why use a business bank account? It’s a great way to separate business and personal transactions and can demonstrate a clear history of your company’s funds. Levi King, co-founder and CEO of Nav, advises:

If you apply for financing, most lenders will want to see your business account bank data to help them make the decision.

You can build business credit by opening small credit accounts in your company’s name. For example, you can apply for a startup business credit card. Business credit cards help you fund daily company purchases.

2. Use good trade references

Trade references are included on your credit application. A trade reference is a business you buy from that extends you credit.

Lenders want to know that you pay your other creditors, such as your vendors, on time. The better your trade references, the more credible your company appears to lenders.

Usually, you need to list three — four references on an application. You will need information about your trade references, including the vendor’s name, address, phone number, and contact person.

3. Review your personal and business credit scores

The lenders check both your personal and business credit scores. Before sending your application, review your personal credit score.

List your business with a credit reporting agency to check your business credit score. There are three credit reporting agencies you can list with: Dun & Bradstreet, Experian Business, and Equifax Small Business. If you find that your current score is less than desirable, you’ll need to learn how to improve your business credit score to increase your chance of getting affordable loans.

You create a profile with the credit reporting agency, giving lenders access to information about your business. Lenders use the report to decide if they will approve you for the line of credit and what terms they will offer you.

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4. Know the line of credit’s purpose

Lenders will not approve your credit application without knowing the purpose of the funds. Have a clear understanding of why you need the money. Also, be able to explain your needs to lenders.

Your plan for the funds must be practical. If you ask for more money than you can realistically pay back, the lenders probably won’t approve your application. If you are approved, you will likely be offered less money than you requested.

5. Organize your financial records

To prove to lenders that you will be able to repay the credit, you need to provide them with accounting records. Lenders will be especially concerned with your business’s cash flow.

Cash flow is the money coming in and out of your business. The healthier your cash flow, the better your ability to repay a line of credit. You should give lenders your cash flow statements and cash flow projections.

Lenders will also look at how much your company generates in profits. Compile bank account information, documents of your assets, and a profit and loss statement for your small business.

6. Prepare your business plan

Lenders will want to see a written business plan. You’ll want to make sure you know how to do a market analysis because a business plan will include your company’s purpose, products or services, partners, market analysis, employees, and financial history.

Make sure your business plan is up-to-date when you show it to lenders. The plan should help support your company’s current creditworthiness.

7. Fill out the application correctly

Double-check that you filled out the credit application correctly. Also, make sure you filled out the entire application.

Here are some major points to look over before you submit the application:

  • Your business’s name, address, and the owners’ names
  • Your business’s annual gross sales listed on the previous income tax return
  • The day your business was founded — note that if you bought the business from someone else you need the original date the company began operating

If you plan to apply for a line of credit, you need accurate financial records. Patriot’s online accounting software comes with free, USA-based support. Try it for free today!

This article has been updated from its original publication date of October 6, 2016.

This is not intended as legal advice; for more information, please click here.

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