When it comes to the question of how to get business credit, the simple answer is to give it time. Like all good things, your credit grows a little bit every day.
Lenders use business credit as an algorithm that predicts how likely you are to meet your financial obligations. As with any algorithm, your business credit uses data to produce its result. Some of the factors that determine your credit include the promptness with which you pay your bills and how much of the balance you pay each month.
When you approach a lender for capital, 6 main factors will help them evaluate your overall credit and make their decision.
Business debt coverage: Lenders will look at your current situation to see if you can handle your debt obligations by evaluating your cash flow and required debt payments.
Business debt usage: Another important aspect of your debt is whether or not it’s appropriate for your industry and business size. Lenders will compare your outstanding business debt with your assets and revenue to get a clearer picture.
- Business revenue trend: If your business has revenue growth at or above the industry average, lenders will consider your business to be trending in a favorable direction.
Personal credit: Expect lenders to check into your credit history. They’ll pay close attention to amounts owed, credit in use, and payment history.
Personal debt coverage: If your financial situation is healthy, lenders will consider you a safer bet because you’d be in a position to make payments if your business couldn’t meet its obligations.
Personal debt usage: By dividing your outstanding debt by the total amount of available credit, lenders will determine how much of your credit you’re utilizing.
As you can see, not all of the factors are business-related. That’s because your business credit shares common DNA with your personal credit score. Lenders will be keenly interested in how reliable you’ve been with the finances of your personal life.
This consideration can play into your favor because it means that if you have a small business that hasn’t yet had the time to establish a solid credit history, you’ll still have an opportunity to access capital. Basically, if your business doesn’t have enough data to produce a compelling credit algorithm, many lenders will allow you to leverage your personal credit instead.
If you have a healthy credit score, you will likely have access to the broader array of financing options. As you acquire financing with your personal credit, you’ll be adding fuel to your business’s engine and helping it build a more robust credit history. Every payment you make gets you one step closer to the type of score that will open more doors for you.