A new business needs capital to grow and, at bare minimum, survive.
Unfortunately, it can be difficult for unproven enterprises to secure credit from risk-averse banking institutions. The following tips can pave a clearer path toward accessing credit lines for your business.
Mind your personal rating.
Most banks pay close attention to a business owner's personal credit rating when determining whether to lend money. Many require a minimum personal credit score in the mid-600s. To boost your score, pay your bills on time, keep your balances below 30 percent and maintain a low ratio of debt to available credit. You should also make sure your partners do the same, since many banks check the personal scores of anyone who has more than a 20 percent stake in a company.
Apply before the money is needed.
Apply for some credit right at the outset. This will help you start building a credit history for later down the line. Banks often require small businesses to establish themselves for at least 24 months before they offer sizable credit lines. You can get around this by obtaining a small secured credit card or store-based credit line from retailers that supply to small businesses, including Home Depot or OfficeMax. These are great ways for businesses to secure commercial credit accounts to help build their credit histories.
Use your available credit.
Don't just sit on your credit; use it to establish a payment history. Be sure to request increases in your limits, even if you don't really need them. You should also check to see if your company has a profile at the business credit reporting agency, Dun & Bradstreet. If it does not, consider paying a fee to set one up. Once you have one established, you can add business references to elevate your credit profile.
Work with multiple lenders.
A single bank can change its policy and cut your credit on a moment's notice. Insure against surprises by spreading your financial eggs across multiple baskets. Consider having your business credit card through one major bank and your credit line though a credit union or locally-owned bank. The latter can be a nice option, since you're more likely to secure a conversation with one person who can champion your loan package.
Go another route.
Traditional banks aren't your only chance at securing credit. Investors, asset-based lenders, peer-to-peer lending and crowdfunding sites all provide avenues for capital. What's more, by using these alternative channels, you can actually improve your credit and reputation for more opportunities down the road.