Small businesses often need business loans to survive and thrive. Perhaps they need to pay operational costs while revenue is down, or they may need a small business loan to update equipment for a new order.
Unfortunately, one of the main requirements for a small business loan, a long credit history, is something a young business may lack. Perhaps it’s for this reason that many small businesses are using a reputable online small business loans platform like Levr.ai to connect with certified lenders. Not only does this platform simplify the application process, but it uses AI to match businesses with their best loan options.
Please read this guide to learn more about:
- Why credit history is important for small businesses.
- Steps to improve your credit history.
- Alternative financing options.
- Tips for a successful loan application.
Assessing Your Current Credit Situation
Before you embark on the journey of securing a business loan, it’s essential to assess your current credit situation. Start by obtaining a copy of your business credit report from the three major credit bureaus:
- Experian
- TransUnion
- Equifax
Review the report carefully to ensure that there are no errors or inaccuracies that could be negatively impacting your credit score. If you find any discrepancies, report them to the credit bureau immediately to have them corrected.
Credit history is important because it shows your creditworthiness to lenders. A good business credit history gives confidence to lenders that they can lend your company money and get it back.
Steps to Improve Your Credit Score
Improving your credit score takes time and effort, but it’s a worthwhile endeavor if you’re looking to secure a business loan.
Pay on Time
Start by making all of your payments on time. Late payments can have a significant negative impact on your credit score. You can even up reminders or automatic payments to ensure that you never miss a payment!
Reduce Existing Debt
Additionally, work on paying down your existing debt. High credit utilization, which is the percentage of your available credit that you’re currently using, can lower your credit score.
Diversify Your Credit
Having a healthy mix of credit accounts, such as business credit cards and loans, can demonstrate to lenders that you can effectively manage different types of credit.
Alternative Financing Options with Low Credit History
Let’s say you don’t have enough credit history to qualify for a conventional loan. Well, don’t give up! There are other options:
- Invoice Financing: With invoice financing, you can use your outstanding invoices as collateral to secure a loan.
- Merchant Cash Advances (MCAs): An MCA allows you to borrow money based on your future credit card sales.
- Peer-to-Peer Lending: Peer-to-peer lending platforms connect borrowers directly with individual investors who are willing to lend money.
- Crowdfunding: Crowdfunding platforms allow businesses to raise funds from a large number of individuals who believe in their product or service.
How to Improve Loan Application with Low Credit History
- Offer collateral to strengthen your application.
- Use your personal credit if it’s stronger than your business credit.
- Improve your supporting financial documents.
- Add a cosigner with a strong credit history to your loan.
While having a low credit history can make it more challenging to secure a business loan, it’s not an insurmountable obstacle. By following the tips shared above, you can unlock opportunities and secure a business loan, even with a low credit history.
Veeramachineni Lalitha
I am Finance Content Writer. I write Personal Finance, banking, investment, and insurance related content for top clients including Kotak Mahindra Bank, Edelweiss, ICICI BANK and IDFC FIRST Bank. My experience details : Linkedin