There are a number of factors that impact your ability to get a small business loan, but your age isn’t one of them. That said, your business’ age and the age of your business credit profile do matter.
Most lenders are trying to answer a couple of really important questions:
Can you repay a loan? This is why lenders look at your revenues and your cash flow. They are trying to determine whether or not your business is capable of servicing debt. In other words, do you have the means to make the periodic payments?
Will you repay a loan? This is where the age of your business along with the age of your business credit profile become part of the equation. They are looking for a track record that demonstrates you not only can, but that you will make the periodic payments.
How many years your business has under its belt is important, but the age and depth of your business credit history are possibly even more important.
For example, if you’ve been in business for five or six years, but have never borrowed, your business will have what is sometimes referred to as a thin profile—meaning there is little there to demonstrate that your business will repay a loan. And, making it much more difficult to get approved for a small business loan.
Strategically Building a Business Credit Profile
Here are three strategies that will help you build a strong credit profile for when you need to borrow—regardless of whether your business has been around for two years or 10:
1. Start with a level set
In other words, understand what your business credit profile looks like today. A business credit profile is a little different than your personal credit score in that it’s public; once you register your business with your state, information about your business and your business credit profile become part of the public record.
Fortunately, all the major business credit bureaus make that information available to you. Some may charge a fee, but it’s worth investigating so you can look at what the bureaus report about your business. In addition to the major credit bureaus like Dun & Bradstreet, Experian, and Equifax, there are also companies like Nav that can help your business’ profile.
2. Make sure your profile is accurate
Don’t assume the information in your profile is correct. Your profile will include information from the public record like the type of business you operate, your business revenues, and your industry. All these things are taken into consideration when evaluating your business’ creditworthiness.
Fortunately, the credit bureaus are motivated to make sure their information about your business is as accurate as possible, so they all offer processes to correct verifiable errors. Regardless of whether or not your business has been around for several years or is fairly new, make sure the information they have and share about your business is accurate.
3. Build a solid track record
This is not as difficult as you might think. You don’t necessarily need a small business loan to build credit, but you do need to demonstrate that you can successfully use credit. Sounds like a contradiction, doesn’t it? Fortunately, there are a number of ways to strategically build credit, demonstrate a track record, and make a small business loan down the road easier to qualify for.
Start by considering the vendors you purchase supplies from or goods you purchase to resell. Many of your suppliers likely offer 30- or 60-day terms to their best customers. While this may not be a small business loan, if they report your good credit history to the appropriate business credit bureaus, it helps you build a track record.
If you don’t have suppliers that offer credit terms, there are other places like Staples or Home Depot that sell many of the supplies small business use that do. You might also consider business credit cards. They will likely approve a small balance at first, but as you make timely payments and demonstrate your ability to successfully service debt, you’ll be well on your way to building a track record that will help you qualify for a business loan down the road.
I’m an advocate of regularly reviewing your business credit profile. In fact, I’m convinced it’s an important part of strategically building a track record that will help you qualify for small business financing in the future. What is regularly? That’s up to you, but I don’t think monthly is too frequently.
If you’re familiar with the story of the tortoise and the hare, you know that slow and steady wins the race. This is true when building a strong business credit track record—even if you already have a few blemishes on your business credit profile. Creditors are generally looking for more positive than negative notations on your business credit report, so over time, as you add positive notations to your credit file, your profile will improve. There are no shortcuts, but because we tend to impact that which we pay the most attention to, regularly reviewing your profile is the best first step you can make.
It’s your business’ track record, not your age, that matters when you apply for a small business loan.
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Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.