So, you are cash broke and in need of additional funds in order to keep your business alive. Your next step, after you’ve exhausted your friend/family network, is to get on the net and start researching business loan possibilities. You plug in the keywords in Google and, bam, a million results pop up of financial lenders that want to give you money, and take back your money with interest. You get going immediately because you need cash yesterday, but instantaneously your million choices reduce to a handful because you don’t have the credentials. In a traditional lending environment, lenders lend money to borrowers based on certain credentials of the borrower. Until recently, you could only get money from a bank or financial institution and the process in applying for a loan was arduous to say the least. You would wait a couple of weeks for a decision only to find out it is a nogo. So how do you solve this problem? How do you convince lenders that your are worthy of borrowing their money and won’t end up in default, and eventually a write-off for the financial institution?
First things first
Businesses that have been in practice for less than two years have a very limited chance of getting a traditional loan from a bank without assets. At that point, the business owner has a couple of options. First, to get a loan from a bank they would have to go down the path of applying for a personal loan based on personal credentials and creditworthiness. The exception here is if the business has good standing credit for more than a year and has positive net worth, then a personal line of credit wouldn’t be needed. Here’s how to keep your credit clean.Pay your bills!
It might sound simple but some things are easier said than done. I know you have trouble keeping up with the bills, so do I. But if you want show lenders that you are a low risk borrower you have to pay your bills. When you don’t pay your bills, depending on what kind of company you are paying to, they may or may not report your delinquent payment history to the credit bureaus. Each time that happens will result in a demerit and a reduction in your credit score. The lower score, the more of a risk you are to possible lenders. Moral of the story? PAY YOUR BILLS!Get credit cards and other types of credit, and use it often
Lenders love to see that you already have credit, that you are active in using those credit lines and current in payments. When you first start a business it can be quite difficult to get credit for that business. What many business owners do is co-sign with personal credentials on the credit application in order to get the approval. Over time, usage of this credit line shows that the business is reliable in paying its bills and the credit rating reflects it. The longer your credit is active, and the more credit you have that is current and good standing, the better you look to lenders. Contrary to what you may believe, It isn’t a bad idea to have multiple credit cards and use them often. Conducting all your purchasing for all your business needs on a credit card, such as fuel, business meals, office supplies, etc., is a great way to show that you are active and using it. On the other hand, if you use it and don’t settle the debt responsibility then that will result in negative credit rating (again, pay your bills!).Too much isn’t good either
You don’t want to overdo it with credit cards either because lenders often see that as a risk. If you have 10 credit lines (credit cards and other lines of credit) with reasonable limits, of lets say, £8,000, then you are considered a risk by that amount, even if all are at zero. They key is to have the right amount of credit for you needs and to exercise that credit proportionally. Keep your balances as low as possible and make sure to eliminate old lines of credit that aren’t needed. For example, that department store credit line you have from 12 years ago remains as an open line of credit, even if you don’t have the credit card anymore. You have to make sure to close it permanently by contacting the financial institution, requesting to close the line and getting a confirmation.Show revenue
If your business is operating with positive net revenue it will be more likely that a lender will be interested in adding you to their books. If you can show money in the bank that proves you’re a responsible business owner, and it also shows them you have actual money that the lender can go after if you decide not to pay.Manage your credit report
This is an absolute must and an extension of the previous point. In order to manage your credit you need to know what the lenders are seeing when they do a credit check. You may be very surprised to see what is on there. Such as a negative report from something that happened years ago that may or may not be accurate. You have to ensure the accuracy of these things – NO ONE IS GOING TO DO IT FOR YOU. You can write to any of the credit reference agencies and ask for a copy of your credit reference file, at the cost of £2. Your letter should include: • Your full name; • Any other names you have used or been known by in the last six years eg your maiden name; • Your full address including postcode; • Any other addresses you have lived at in the last six years; • Your date of birth; and • A cheque or postal order for £2 made payable to the credit reference agency. The addresses of the credit reference agencies are: • Equifax Ltd Credit File Advice Centre PO Box 1140 Bradford BD1 5US 0844 335 0550 www.equifax.co.uk • Callcredit Plc Consumer Services Team PO Box 491 Leeds LS3 1WZ 0870 060 1414 www.callcredit.co.uk • Experian Ltd Customer Support Centre PO Box 8000 Nottingham NG80 7WF 0844 481 8000 www.experian.co.uk So there you have it, some advice on how to keep your credit clean. Here at ezbob, our requirements are much more convenient than those old dog financial institutions. We only ask for five things: • You must be over 18 years old. • Your business must be registered here in the UK • You need a valid business debit card • You are a director/owner/partner of the company • You have a minimum annual turnover of £10,000 So come give us a click and we’ll lend you some cash.The post How to show lenders that you are a low risk borrower appeared first on ezbob.