Review personal credit score when seeking small-business loan
Q: What should an aspiring entrepreneur do to establish small-business credit during the planning and startup process?
A: Good credit has always been important for entrepreneurs. But in today’s economy, building and maintaining a strong business credit score is essential for accessing both startup and growth capital.
Adam Fingersh, senior vice president of marketing for Experian, one of the world’s leading consumer and business credit reporting services, offers these tips:
1Make sure you can meet your current credit obligations — that is, pay your bills on time — before taking on more debt.
1Maintain low balances on personal credit cards and other revolving credit programs.
1Look for small-business lenders or vendors that report smallbusiness payment history information to the major business credit reporting agencies.
Because personal credit history will figure prominently in the loan evaluation process, it’s important to know your own credit score. Under the Fair Credit Reporting Act, you can request an annual free copy of your credit report from the nationwide consumer reporting companies, Equifax, Experian, and TransUnion.
“Review your personal credit report and score to ensure you are in good credit standing,” Fingersh says. “Until a solid business credit profile is established, lenders may ask you to provide a personal guarantee on the loan.”
And just because you’ve had credit problems in the past doesn’t mean your smallbusiness loan is doomed. SCORE Houston counselor Anil Prasad recommends explaining the problem and how you resolved it in your business plan, then being prepared to answer any questions the lender may have.
“Working to correct the problem may well work in your favor,” Prasad says.
It’s also important to remember that while an existing small business may have a good history of paying its bills, the owner still must present a solid case when applying for a new loan or line of credit to support growth or expansion. Potential red flags that might influence how a loan application is evaluated include:
1The presence of derogatory public records, such as collections, liens, judgments and bankruptcies.
1An increased trend in slow payment of obligations.
1An increase in the number of business credit inquiries or applications generated by the business or the owner.
If you need more help about credit and other small business finance issues, contact Anil Prasad at SCORE at scorehouston@gmail.com. Ron Consolino is a business counselor for SCORE, a nonprofit association, whose volunteers help start and improve small businesses. Send questions or volunteer inquiries to scorehouston@gmail.com.
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