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The Truth About Small-Business Credit
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Article 6: Convince Creditors To Lend You Money
When you need to borrow money, you’ll be faced with the challenge of proving your credit-worthiness to a bank lender or a vendor from whom you request extended terms.
Convincing someone you’re a good risk can be difficult if you’re new to business and you have little or no track record. But, there are steps you can take now to improve your chances of obtaining credit later.
First, building a solid banking relationship can go a long way toward smoothing the road.
“Having a good banking reference is important,” says D. Brent Wells, a certified creditors rights specialist and president of Wells & Cuellar, a Houston-based law firm that helps businesses design efficient credit programs.
Such a relationship may include a history of depository accounts as well as loans.
Second, pay your bills on time. That allows you to build a roster of favorable trade references to provide to new vendors.
Although bank and trade references are great resources, the fact remains that many providers of credit will bypass them and go straight to the credit reporting companies to check your personal and business credit ratings. That means that checking your credit ratings, taking steps to improve them, and correcting any errors is vitally important.
One more thing: When you apply for credit, express your willingness to share documentation.
“Be ready and willing to provide financial statements,” suggests Wells. “Being forthcoming with such information facilitates the credit decision and demonstrates you are not trying to hide any details of your finances.”
If you’re turned down for new credit, you may decide to pay with your current credit card. This is a fast way of obtaining credit, since your vendor is assured of receiving funds and you are relieved of the obligation of paying cash. The downside is cost: You will pay a handsome interest rate for money carried beyond 30 days.
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