When you have a low business credit score or no business credit score, it can be frustrating getting rejected for a business loan. In order for a business to get a loan, lenders will want to see your business’s credit report and payment history to determine creditworthiness, which is the ability to pay back a loan. Unfortunately, for many businesses, it is hard to secure a loan since each lender has different qualifications.
The best way to help your business build up its credit score is to have evidence that your business can consistently make its payment on time. If your business suffers from a low credit score or your company is a startup that is trying to build up business credit, consider using a secured business credit card.
What are secured business credit cards?
Unlike unsecured business credit cards which have a set credit limit based on your financial history, secured business credit cards have credit limits that are set by a cash deposit made by the credit card owner. If the credit card owner deposits $10,000 into the collateral account, then the credit limit for the secured credit card is $10,000.
When the credit card owner uses the secured credit card, the money is taken from the collateral account which lowers the credit limit. The credit limit returns to the original amount when the bill is paid off.
Secured business credit cards are helpful for two reasons. First, the lender is able to have a guarantor of the loan in case the borrower defaults. Second, the secured credit card owner is able to borrow against an amount that he or she already has, which is less risky than an unsecured loan.
With unsecured business credit cards, both lenders and credit card owners will face a higher risk if cardholders are unable to make a payment, which can cause a business credit score to go down.
How does a secure business credit card build my business credit score?
The main reason why secured business credit cards are helpful in building a good credit score is that it provides a record to show your consistency and ability to pay on time.
When credit card owners are able to demonstrate their ability to pay, their credit score and creditworthiness improves. This will give business owners a likelier chance to get approved for a loan.
Other ways to boost your business credit score
In addition to using a secured business credit card, there are a few other ways to help you improve your business credit score. One way is to keep up your records with the three large credit bureaus for business: Experian, Equifax, and Dun & Bradstreet.
Although getting your business credit score isn’t free, it is important to have a clear understanding of where you and your business stand. Dun & Bradstreet also allow business owners to edit their business profiles, keeping the most up-to-date records for their business credit report.
Another way to boost your credit score is to decrease your credit utilization ratio. Your business credit score is heavily influenced by this ratio, which is typically at 15%. This means that business credit card owners should be mindful of their limit and spending as to not exceed a spending-credit ratio of 15%.
Applying for a business loan
When a business owner applies for a business loan, lenders will pull their business credit report as well as their personal credit report. Each lender will have different qualifications regarding business loans. Some lenders will work with businesses belonging to a specific industry, while other lenders will only offer certain types of business loans.
Lenders will also want to know other information about your business such as the number of years in operation, annual revenue, net operating income, how you intend to use the loan, and other details.
Additional loan requirements for an SBA loan
If applying for an SBA (Small Business Administration) loan, there are additional guidelines for a business. The Small Business Administration is a U.S. government agency that provides support for small businesses across the nation.
Although the agency does not disperse loans, in order for a financial institution to disperse an SBA loan for a borrowing business, the loan and the business must follow certain standards set by the agency. In an SBA loan, the government is able to back the loan and reduce a lender’s risk should a business default on the loan.
This is the main reason why SBA loans have more restrictions and qualifications. Businesses in certain industries such as life insurance, mining, mortgages, real estate development, and others are excluded from qualifying for an SBA loan.
Need help getting a business loan?
If you’re a business owner who is tired of going from place to place trying to get approved for a loan, we recommend Opportunity Business Loans to make the loan process easier. Opportunity Business Loans is a platform that connects businesses to a large network of lenders, which increases the likelihood of finding the best loan for your business.
You’ll also save an enormous amount of time and energy since you only need to fill out one loan application. With over a hundred different lenders in Opportunity’s large network, you and your business will be able to find your best loan offer in the easiest way possible.
Video – What is a credit card?
This Market Business News article explains in layman’s terms what credit cards are.