Whether you’re looking for a personal or business loan, it’s important to plan ahead before you start the application process.
You’ll want to set yourself up to have the best shot of getting approved in addition to getting the best interest rates. Thankfully, small business owners have so many different options than they had five to 10 years ago.
The online business loan industry has grown tremendously over the years with companies such as Kabbage, OnDeck, and Funding Circle leading the charge. You also have the option to go to your local bank as well.
If you’re looking to get a business loan, there are many different factors the lenders look at your credit score, the length of business, annual revenue, and even your business credit report. Here are some things you can do today to ensure you have the best shot at getting approved.
Do a Quick Personal Credit Report Audit
Lenders will look at both your personal and business credit profile as part of the approval process. First, look at your personal credit report to look for inaccuracies. There are quite a few credit monitoring tools out there such as Credit Sesame and Credit Karma that will give you a snapshot of what’s in your credit report. Some of them even allow you to dispute inaccurate credit items right there on the spot.
The three major things to look for are late payments, tradelines that don’t belong to you, and collection accounts. You’d be surprised at how many errors the credit bureaus receive. The reason why it’s important to check for these is because if you get declined due to negative items appearing on your credit, you might not be able to reapply for 30 (and even 90) days.
So what type of credit score do you actually need? There are business lenders that specifically cater towards less than perfect credit borrowers and some lenders that only lend to super-prime customers. They’ll look at both personal and business credit. The tricky part about this is that there are different credit score models and each lender adheres to their own rules. Crediful lists out four different types (PLUS Score, TransRisk Score, Equifax Score, and Vantage Score) and states that a good credit score is usually 660+.
Get Listed With Dun & Bradstreet
Although Experian and Equifax provide business credit reports, you’ll also want to get listed with Dun & Bradstreet (D&B). They provide each business with a unique “DUNS number”. In a lot of business credit applications, they will specifically ask for this information. First, look to see if your company is already listed by going to http://www.dnb.com/. If you don’t see your company listed, you’ll see an option that says “Get a DUNS Number.”.
Next, after filling out the information, you can pay for expedited service get your DUNS number. You don’t need to get the expedited service unless you’re in a rush to provide this to a vendor. Otherwise, you’ll get it in 30 days.
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Know What Type of Financing You’re Looking For
There are many different types of business loans and each one has very specific requirements. This is why it’s important for you to figure out the exact purpose of your loan. For example, you can get a Small Business Administration (SBA) loan from the government or just apply for a simple personal loan. SBA loans are administered through a bank that participates in SBA financing. This is very similar to when you get an FHA mortgage from a mortgage lender. It’s a type of financing that the government backs. The average funding time for SBA loans is approximately 20 to 30 days.
Now on the other hand, maybe you’re looking for a cash advance type of loan to re-invest into your business. Invoice financing is great for businesses that have outstanding invoices. You can typically get advanced roughly 80 to 85 percent of the outstanding invoices. You can receive funds in less than a week. See the difference? Depending on your business needs and the speed at which you need the funds, the type of financing you’re applying for makes a huge difference.
Don’t Apply for Major Financing or Close Any Credit Accounts
Lastly but not least, this advice goes for anyone looking to get a business loan or any type of major financing (house, car, student loan). You should hold off on applying for other types of credit because your overall debt-to-income (DTI) ratio will increase. Lenders typically want to see a lower DTI since it provides them more security that you’ll pay back the loan.
By applying for new credit, you’re essentially creating more inquiries on your credit report. We all know that inquiries ding your credit and it only accounts for 10 percent of your credit profile, however, even a single point can disqualify you from getting a loan. Most lenders have certain credit score threshold requirements so it would be a shame if you were off by one point.
The same goes with closing any credit accounts. You should never do this in the first place. Having a tradeline on your credit report that’s been aged is actually a good thing. The length of credit history plays an important part so the last thing you want to do is close an account that’s playing a healthy part in your credit score.
Related Article: 5 Surprisingly Cheap Forms of Small Business Financing
Applying for a business loan and getting approved isn’t the easiest task, but you can certainly set yourself up to have the best shot at success. Always make sure you’re monitoring your credit and instill healthy financial habits to keep your score and business intact.