Why your personal credit is so important to your business loan lender
Banks, along with equipment funding lenders, use the following to assess loan applications:
But while banks look at little-to-medium size businesses from a Fortune 500 view, applicants are seen by equipment funding businesses from a small business outlook, a more “common sense” approach to financing.
The first thing we look at is how you pay your bills. As a small equipment financing business. We work with a lot of new business owners. They attempt to apply for an equipment lease using their EIN instead of their social security number.
And while equipment leasing is a type of trade line that will ONLY appear on your business credit report.
The decision to approve your lease request will be based on your personal credit score. Unless your business qualifies for a “corp only” lease. And even then, they sometimes still want to look at your personal credit report before they approve you based on your business credit alone.
Why your personal credit score important
In order to make a decision on whether to lend to a startup business will be based on the PERSONAL credit of the business owner. Even established businesses will find that their lender wants to look at their PERSONAL credit before extending credit. Unless you’re a large corporation, it’s unlikely that a small business owner will qualify for “corp only” credit approval.
Before applying for any type of business financing, you should check your credit score. Take a look at all 3 credit bureaus and fix any errors that you find.
If you have a 680 or above, you will generally easily get approved. But once you fall under a 680, you need to do whatever you can to bring up your credit score. One of the best ways to do so is to pay down your credit card debt.
If you are using more than 30% of your revolving credit, your score can be lower just because you carry a lot of credit card debt.
If your credit is damaged, there are a few things you can do.
- Learn how to improve your credit yourself. There are a lot of sites that offer DIY credit repair information. I’ve written articles for Ezcreditrepairsolutions.com and they have lots of articles on credit repair.
- Find a good credit repair company. But don’t fall into the “credit repair hole” I’ve had clients that have been paying $100+ a month to credit repair companies for over a year and STILL have a credit score in the 500’s!
- Look into a good debt settlement or debt consolidation company to help you not only pay on those debts but hopefully have the creditors remove the negative information from your credit report!
Ability to repay
While we have many different types of business financing programs. One thing that remains the same, regardless of credit score.
You have to show you have the means to make monthly payments.
We get a lot of customers that don’t seem to understand that fact. I hear several times a week that if we extend the loan they would then be able to go “find” more clients, and expand their business. Then repayment will not be a problem.
Your lender needs you to be able to pay your lease or loan back on a monthly basis, starting immediately. What happens if you don’t get the clients you need in 30 days or worse, they don’t pay you on time. Your lender may be forced to repossess the process.
How can you overcome this potential deal-killer? If you have clients already lined up to do business with you.
Get letters written on your clients’ business letterhead stating their intention to do business with you and how much that will cost them. Your goal is to make your lender feel at ease about lending you the money.
If you don’t have that, you can look for a co-signer. A friend of a family member with strong credit and strong financials.
Additional security can also help you turn a NO into a YES. Especially if you have bad credit. Being able to provide additional security in the form of equipment, paid off vehicles. We have accepted real estate, cars, and even a yacht once!