How Small Businesses Can Get the Financing They Need
Step 1 – Set up the company right away to start to establish age to the business. This can be accomplished by forming a LLC or corporation which will provide a date the business was established. In addition you want to file for a business license even if you don’t have a location for your business yet. Use your home address if you need to.
The key with Step 1 is to establish a start date for the business. Many lenders will issue credit to new businesses but they want to see that you’ve been established for at least six months.
Step 2 – Get in compliance with the lending market. Lenders have specific requirements for obtaining a small business loan. They also have a system for reviewing every application they receive. Some lenders don’t pull a credit report until they’ve taken a few steps to determine if the company is real. Why would they spend money pulling a credit report only to find out the business hasn’t even been formed yet or it doesn’t have a phone number.
A few lenders we’ve researched have calling directory assistance to look up the business name as the first set of tasks they will do before making any decisions on the loan application. If the business isn’t listed with directory assistance the lender will decline the application and move to the next one.
Make sure you are in compliance before applying for small business financing.
Step 3 – Create a presence for your business. Lenders will look up your company in various databases online to help decide if they will grant an approval or not. If a lender looks up a company in one of their databases and the company doesn’t show up they are likely to do more research on the business or may decline the application right away.
To create a presence you can register with the business credit bureaus and list your company with various online business directories to establish your company in these databases.
Step 4 – Start with the easiest type of credit to obtain – Trade Credit. Trade credit is the single largest source of lending in the world. Don’t ignore this type of credit and financing available to small business owners. By working with companies that issue trade credit you will establish some credit accounts in the business name only (no personal credit check or guarantee required). Just make sure the company reports your payment history to the business credit bureaus.
Once payment history is reported to the business credit bureaus you’ll start to establish a profile and score. When the score has been establish, and your personal credit is at a good level (650+) you can start to apply with lenders. If you have a personal credit score below 720, you need to look for SBA lenders issuing micro loans that will grant up to $25,000 to a business that’s been established for six months and has requirements down to 650 FICO scores. They are out there, so do the research to find them.
By following these four steps you’ll put your business in a better position to obtain financing then doing nothing.