5 ways to help secure the credit you need

Access to credit can be key to helping you strengthen your business. However, the process of securing credit starts long before you apply. By taking some simple steps now to strengthen your financial position, you can help put your business on stronger footing when it comes time to talk to a lender.

Here are five easy ways to help improve your access to credit.

Lenders often make decisions based on the “5 Cs” of credit. Each component helps a lender gauge the likelihood you’ll repay:

• Character: What is your business’ credit and payment history, and what is your personal reputation? How long have you been working in your field?
• Capacity: Is your cash flow sufficient to cover expenses and make loan payments on time?
• Capital: What is the net worth of your business — in other words, how much cash and other assets do you have relative to liabilities?
• Collateral: Which assets could lenders use to secure a loan? These may include business property, a residence, or cash savings or deposits. Lenders may see a willingness to pledge personal assets as a strong commitment to the practice.
• Conditions: What outside factors, such as the state of the economy or your industry, could affect your ability to repay?

Make timely payments on existing loan and credit card accounts to help build a solid foundation for future borrowing. You can help improve your credit rating by showing you can manage regular loan payments and settling credit card balances each month.

If you are just starting your business and have a limited credit history, look for opportunities to borrow when you are confident you can repay quickly. For example, you might get a business credit card with a low spending limit or establish a credit account with a local office supply store.

Lenders typically request business credit reports to assess the financial strength of prospective borrowers. Many also review personal credit reports since they may require a personal guarantee. To help head off possible problems, review your reports at least once a year. Make sure all of the data in your profile and payment history are accurate. If any details are incorrect, contact the agency right away. You might also self-report some data to make your file more comprehensive.

Your business credit score is based primarily on the timeliness of your payments, so it’s wise to pay utility, insurance, and other bills before their due date. Ask suppliers to report your payments to the credit bureaus. The more accounts you have in good standing, the bigger the lift to your score.

Manage your finances carefully and look for ways to reduce costs. These may include small steps such as re-evaluating your vendor contracts yearly, taking advantage of industry discounts, and outsourcing non-core business processes.

Keep track of documents that can provide lenders with a complete financial picture of your operations, such as balance sheets, income statements, and business and personal tax returns. Managing these documents carefully is critical to help ensure access to credit. You might also revisit your business plan to make sure it’s up to date and explains your practice areas, your competition, and your methods for attracting clients and professional talent.

We are committed to helping your business reach its potential. Our dedicated business banking professionals can help you find the right product to meet your business’ needs. To learn more about small business loans, please call 1-800-428-7463, visit us online, or visit your nearest Citizens branch.