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Credit & Lending

7 Posts authored by: D&B Credibility Corp

Created for the Bank of America Online Community by Dun & Bradstreet Credibility Corp.


According to the Small Business Administration (SBA), 90% of the $1 trillion borrowed by small businesses each year comes from banks and finance institutions. Despite the large number of businesses who depend on this funding source, the lending process – from application through approval – is often confusing and challenging for business owners. This article is the first article in a four-part series we hope will help shed some light on small business lending.


The Application Process


Applying for small business loans can be frustrating and often takes longer than business owners expect. The good news is that most of the problems small business owners experience when applying for loans occur because the business owner does not know what information and preparation the bank expects from them. Understanding what to bring to a lender meeting can be the first step towards successfully and quickly applying for a loan.


While the details of a loan application process will vary among different banks, there is certain information most banks will want to know. Much of the information they need should be easy to gather such as the age of your business, size of your business (number of employees), annual revenue, how long you’ve owned it, the type of business and industry, years as a customer of the bank, and what percentage of the company you own. Some of the more detailed  information required may include: 


  • Financial and tax statements for the past three years, including income and balance sheets, cash flow, and bank statements. If you have not been in business for that long, you should include a detailed business planSBA websitethe Bank of America Small Business Online Community), though it may still be more difficult for you to successfully find a lender without help from the SBA.
  • Liquidity: How much cash your company can access quickly and easily. Strong liquidity indicates that your business is likely to continue to be able to meet its ongoing financial obligations. Liquidity measures include the current ratioquick ratio
  • Personal financial information such as credit rating, tax returns, and bank statements.

 

The following may also be asked in the application:


  • Why are you applying for this loan? While the answer may seem obvious to you, make sure to be specific when explaining this on your application.
  • How will the loan proceeds be used? Be as detailed as possible. For example, include the costs of any equipment you plan to buy or lease.
  • How do you expect the loan to affect the growth and stability of your business? Again, the more detailed your financial projections are, the more effective they may be at demonstrating that your company is a good investment.
  • How much other debt do you have? Other outstanding debt repayments can affect your cash flow and ability to repay new debts.
  • Who are the members of your management team?


Preparing all this information is an important first step before applying for a loan or meeting with a lender. Not only does it make it easier and faster for the lender to process and (hopefully) approve your loan, coming in with all the documentation completed can help you make a good first impression. We will provide more loan application strategies in our next post, so stay tuned.


For more information on business credit and credibility, please visit DandB.com or call 1-800-280-0306.


* The information and advice provided by Dun & Bradstreet Credibility Corp. is provided "as-is." Dun & Bradstreet Credibility Corp. makes no representations or warranties, express or implied, with respect to such information and the results of the use of such information, including but not limited to implied warranty of merchantability and fitness for a particular purpose. Neither Dun & Bradstreet Credibility Corp. or any of its parents, subsidiaries, affiliates or their respective partners, officers, directors, employees or agents shall be held liable for any damages, whether direct, indirect, incidental, special or consequential, including but not limited to lost revenues or lost profits, arising from or in connection with a business's use or reliance on the information or advice offered by Dun & Bradstreet Credibility Corp.

Credit.jpgMaintaining good business credit is essential, as a bad credit rating may severely hinder your business growth and expansion. Without good business credit, banks can be less likely to accept your loan applications. Operating without loans can have significant impacts on your cash flow and working capital and does nothing extra to build your business credit.

 

In addition, if you skirt your financial responsibilities, it’s unlikely that suppliers will extend your business a trade or credit account. That means that you may lose the ability to leverage the 30-, 60-, and 90-day terms of invoices as short-term loans. In addition, many businesses enjoy discounts provided by suppliers to encourage prompt payment; cash customers usually do not get such discounts.

 

If your business does not have good credit, you can take steps to repair it. The first step to building your business credit is to contact your creditors to set up payment schedules. Such schedules should be reasonable and fair to both your business and the creditor. If you have some history of paying bills promptly, you may find that creditors are willing to set up alternative payment schedules. In addition, successful completion of a payment schedule often leads to a continuing relationship between businesses and creditors.

 

Late payments or unpaid invoices can often be traced back to housekeeping or paperwork issues rather than cash flow problems. Even these types of mistakes can affect your business credit.

To determine the root cause of the problems ask yourself:

  • Are your creditors sending invoices to the correct address and person?
  • Are your payment checks being sent to and received by the correct department and person?
  • Are all parties clear on when payments must be made?

 

Additionally, listed below are steps you can take to improve your business’s creditworthiness:

  • Always pay on time. The ability to repay loans promptly has a great impact on business credit scores. You should endeavor to always pay within the terms you have with your suppliers. On-time payments are the most direct way to improve a business credit rating.
  • Pay your biggest bills first. Some business credit scores are dollar weighted, such as the PAYDEX ® Score. Therefore, if you are consistently paying all of your smaller bills but neglecting your largest, your Paydex score can suffer.
  • If timely payments to suppliers and lenders are not included in your business credit profile, your business may not get the credit it deserves for paying your bills on time. You should monitor your business credit profile at least twice per year to ensure that vendor payment relationships are included.
  • Stay on top of your business credit profile. You must ensure that your business credit profile information is complete and accurate. Address any inaccuracies immediately. Certain business credit companies offer customer services and online tools that can help you update and manage such details.
  • Contribute to your company’s credit profile. You can communicate to the credit bureaus as well. The more information you give to credit bureaus like D&B, the more robust your business credit profile will be. In addition, try to choose suppliers and vendors that report their experiences to credit bureaus, which can also boost your profile.

Many businesses are feeling the pressure of tightened credit requirements. However, by carefully planning and executing your plan, you can help fix and improve your business credit.

 

The information and opinions provided by Dun & Bradstreet Credibility Corp. is provided "as-is" and are solely those of Dun & Bradstreet Credibility Corp. Dun & Bradstreet Credibility Corp. makes no representations or warranties, express or implied, with respect to such information and the results of the use of such information. Neither Dun & Bradstreet Credibility Corp. nor any of its parents, subsidiaries or affiliates shall be held liable for any damages, whether direct, indirect, incidental, special or consequential arising from or in connection with a business's use or reliance on the information or advice offered by Dun & Bradstreet Credibility Corp. You should consult a qualified professional to assist you in determining the most effective business structure for your particular business.

For many entrepreneurs, whether veteran or rookie, the toughest part of launching a business is finding funding. Some business owners struggle with qualifying for a loan, others struggle with identifying lenders who will best suit their needs, and some simply don’t know where to begin. Access to Capital, an initiative started by Dun & Bradstreet Credibility Corp. to address these struggles and grow local small businesses, is coming to Atlanta on August 14, 2013 and will be sponsored by Bank of America.

 

https://smallbusinessonlinecommunity.bankofamerica.com/servlet/JiveServlet/downloadImage/4542/Image-CTA-v2.1.gifSmall businesses are the core of the United States economy accounting for 64 percent of net new jobs in the last 20 years, but only half of all new businesses survive past five years, according to the Small Business Administration. It is important for business owners to educate themselves about how to fund and grow their companies past this hurdle, and Access to Capital is designed to do just that.

 

At Access to Capital Atlanta, small business owners will be exposed to expert speakers and panelists that will address the ins-and-outs of lending and will also have the opportunity to meet one-on-one with representatives from a variety of lenders.

 

Bank of America participated in the Access to Capital events in Los Angeles and Chicago and will be a key sponsor at the upcoming Atlanta event. A spokesperson from Bank of America will participate in the Traditional Lending panel and eight representatives will be available for lending appointments.

 

It is important to have a well-established business plan that includes future goals and projections before approaching a lender. This event is also helpful to entrepreneurs in the earlier stages of business development trying to hone their business models and gain the footing necessary to garner attention from financiers. The Community Resource Center at Access to Capital Atlanta will host a variety of local resources, like business development centers and chambers, to cater to these needs.

 

For more information or to register for this unique opportunity, visit http://accesstocapital.com/access-to-capital-atlanta/.

 

Access to Capital Consultations and 1:1 Meetings
The information and advice provided by Dun & Bradstreet Credibility Corp. during the Access to Capital event and its Credit Advisors, including without limitation all information provided during informational phone calls or by any third party lenders during 1:1 sessions is provided “as-is”. Dun & Bradstreet Credibility Corp. makes no representations or warranties, express or implied, with respect to such information and the results of the use of such information, including but not limited to implied warranty of merchantability and fitness for a particular purpose. Neither Dun & Bradstreet Credibility Corp. or any of its parents, subsidiaries, affiliates or their respective partners, officers, directors, employees or agents shall be held liable for any damages, whether direct, indirect, incidental, special or consequential, including but not limited to lost revenues or lost profits, arising from or in connection with a business’s use or reliance on the information or advice given during any counseling session.

Once your business has been operating for at least a year, you should consider applying for a business loan. While many banks require two or more years in business before extending a loan, there are alternative lenders who may work with you before that time. And while large banks will lean toward larger loan amounts, usually in excess of $25,000, there are lenders who specifically handle smaller loans. You should consider all options, but it doesn’t have to be a big loan. It could be for around $1,000 to $3,000, and can be used to pay business expenses like computing equipment or other business services. The purpose of applying for such a loan is to continue to build business credit history, so it doesn’t matter what business expenses you spend the money on – or if you spend it at all. Keep in mind, however, that banks that offer larger loans may encourage you to open a credit card instead of extending you a small loan.

 

Assuming you have been following the suggestions in this series of articles and now have a strong PAYDEX® and good cash flow, you shouldn’t have trouble securing a small business loan. Since credit history is usually the most important determinant of whether banks will give a small business a loan, it’s critical to make sure your PAYDEX score and cash flow are in order.

 

https://smallbusinessonlinecommunity.bankofamerica.com/servlet/JiveServlet/downloadImage/4542/Image-CTA-v2.1.gifBefore applying for a business loan, you should also check your business’s credit history at Dun & Bradstreet Credibility Corp.’s Company Update. Make sure you correct any incorrect data and address any inconsistencies first. A clean business credit history will greatly increase your chances of landing a business loan.

 

After you are approved for a loan, ask your lender for a loan with 90-day terms. Some banks may want longer terms or have steep early payment penalties; you must always read all fine print in order to understand fully your specific loan. However, if your bank will give you 90-day terms, then try to repay the loan in full in 60 days. One month after you’ve done that, apply for a second loan. The second loan should be for a larger account, for example, $3,000 to $5,000. Repeat the same process above of reviewing the fine print then asking for terms of 90 days and repaying in full in 60 days. Now, in just five months, your business has helped prove that it is trustworthy in borrowing and repaying loans.

 

Similar to business credit cards, the 5-3-2 guideline for better business credit can be applied here: a company should have five active trade accounts, three business credit cards, and two accounts paid in full in order to be considered “established.”

 

Once you’ve established your business using the 5-3-2 rule, it’s time to apply for a business line of credit. Go back to the bank with which you’ve already established a relationship. Ideally, the timing of the application would be six months after you secured the first business loan. Business lines of credit enable you to access cash (up to a pre-set limit) whenever you need it. They provide your business with flexibility to obtain funds anytime but not pay any interest until you draw out cash. Think of it as “rainy day” money that will be available in an emergency.

 

Given the choice, many businesses would prefer to obtain a business line of credit before securing loans. However, when it comes to building business credit, securing a loan first enables your business to eventually qualify for a business line of credit.

 

Opening a business line of credit could enable your business to:

  • Improve your cash-flow management. Cash flows often fluctuate due to seasonal or industry-specific factors, and a business credit line can help even them out. For example, a line of credit would benefit a business that regularly purchased raw materials or inventory that will not be sold for several months.
  • Secure lower interest rates than it could with credit cards. Although credit line rates are usually higher than those found in business bank loans, they almost always beat business credit card rates.
  • Make mid- to large-sized purchases. Some business purchases are too large for a credit card, but too small for a business loan. In these cases, a business line of credit can cover those costs. However, it is very important that you do not exceed the credit line’s limit and pay off the balance in a timely manner.

 

For more information, please visit DandB.com or call 1-800-280-0306.

This article originally appeared in Dun & Bradstreet Credibility Corp.'s Credit Resources.

 

 

The information and opinions provided by Dun & Bradstreet Credibility Corp. is provided "as-is" and are solely those of Dun & Bradstreet Credibility Corp. Dun & Bradstreet Credibility Corp. makes no representations or warranties, express or implied, with respect to such information and the results of the use of such information. Neither Dun & Bradstreet Credibility Corp. nor any of its parents, subsidiaries or affiliates shall be held liable for any damages, whether direct, indirect, incidental, special or consequential arising from or in connection with a business's use or reliance on the information or advice offered by Dun & Bradstreet Credibility Corp. You should consult a qualified professional to assist you in determining the most effective business structure for your particular business.

In our third installment of “Five Steps to Business Credit,” we will talk about the importance of business credit cards and offer tips on how to obtain credit cards for your business.


After establishing your D&B ® D-U-N-S® number and credit profile, you should check in on your PAYDEX® and overall D&B Rating to see if it’s improving. You can find your credit report including any established scores and ratings from Company Update, a free Dun & Bradstreet Credibility Corp. service.


If all that is true, it’s time to take your business credit one step further: apply for a business credit card. Although some major credit card companies require that companies be in business for one-two years before extending credit, shop around and see if you meet the requirements for any business credit card. When you meet with the bank manager who specializes in small business credit cards, explain that you have been working to improve your business credit rating. Now, you want to apply for a credit card that you can use with other businesses.


Many credit card companies require a Social Security Number to establish a business card. However, you may be able to work around this or use your Employer Identification Number (EIN) instead when applying for a business credit card. It’s best to separate your business and personal credit when starting and growing your business.  If your bank manager can see that your business income has been growing, the bank may be more likely to extend to your business a credit account. However, if they do not extend you an account there may be opportunities for compromise. For example, the bank may be willing to let you open a secured credit card at first. After a certain period of positive payment history, the card could convert to a regular account. If you have established a good business credit history and the bank is friendly to small businesses, you are more likely to be successful in your endeavors.

 

Even after you get a business credit card, you should continue to maintain your trade account payments – keep paying the balance before receiving an invoice. After you start using the business credit card, make sure that that account’s history is being reported to D&B by your business partners so that your business credit profile continues to grow. One of the advantages of business credit is that it is not negatively affected by adding more credit accounts. If you have the need and ability to maintain, consider opening a second business credit card account. Also different from personal credit, a business’s PAYDEX score is not lowered when merchants check your business credit history or when you open more business credit accounts.

 

Even though your business may not actually require more credit cards to finance operations, you should still consider applying for more business credit cards. In business, the 5-3-2 rule is key – a company’s credit record is not considered established and solid by many, until it has at least five trade accounts, at least three credit cards, and at least two small loans fully paid off.


A word on limits: do not get hung up on your business credit limit. Once you start using the cards regularly and paying for your purchases monthly, your limits should up. After your company has been around for two years, you’ll be able to more easily apply for a major business credit card. Having business cards and developing excellent habits to manage them, such as timely payments, can positively impact your company’s business credit rating.


For more information, please visit DandB.com or call 1-800-280-0306.


This article originally appeared in Dun & Bradstreet Credibility Corp.'s Credit Resources.


The information and opinions provided by Dun & Bradstreet Credibility Corp. is provided "as-is" and are solely those of Dun & Bradstreet Credibility Corp. Dun & Bradstreet Credibility Corp. makes no representations or warranties, express or implied, with respect to such information and the results of the use of such information. Neither Dun & Bradstreet Credibility Corp. nor any of its parents, subsidiaries or affiliates shall be held liable for any damages, whether direct, indirect, incidental, special or consequential arising from or in connection with a business's use or reliance on the information or advice offered by Dun & Bradstreet Credibility Corp. You should consult a qualified professional to assist you in determining the most effective business structure for your particular business.

This article was originally published in Dun & Bradstreet Credibility Corp.'s Credit Resources.


In our second installment of “Five Steps to Business Credit,” we will go over the many ways to build your business credit rating. Because good business credit is essential to financial success, it is critical that you not only understand business credit, but learn how to build it. If your company gets a good rating from D&B®, you may find that more companies are willing to partner with you based solely on this rating. Many companies use D&B ratings to build profitable relationships with their partners.


D&B is the world’s largest credit bureau. It maintains an information database of approximately 200 million companies or more, worldwide, and a staggering 30 million in the U.S. alone. But how is your credit rating determined?


D&B evaluates factors that include your company’s promptness in paying its suppliers and meeting its

financial obligations. In addition, it looks at your business finances, including:

 

  • Cash flow
  • Working capital
  • Net worth
  • Financial resources
  • Corporate finance reports
  • Business filings
  • Judgments against your company

   

Finally, it also considers self-reported data such as interviews with company principals and other company partners, as well as direct investigations. In order to establish a D&B credit rating, you need to obtain a Data Universal Numbering System number, or D-U-N-S® number. You can apply for a free D-U-N-S number online and receive the number in 30-45 days. Once you have the D-U-N-S number, you need to contact your trade accounts to have them add your D-U-N-S number to your credit file. That way, D&B will get a report of your credit history with each vendor each month.


One of the scores that D&B assigns your business is reported as a PAYDEX® score that ranges from 0 to 100.  The best scores are those above 80. (Compare this with personal FICO scores, which range from 500 to 800, with scores more than 750 being excellent.)


Your business can get rewarded for paying early! You may be able to boost its PAYDEX score by paying its accounts before your trade accounts generate invoices. For best results, your business should use five accounts each month. To ensure that you are paying early, get into the habit of sending the company a check immediately after making a purchase on credit.


It’s also important to remember that the four Cs of credit almost always determine the creditworthiness of a business:

  • Capacity: are you able to repay the loan?
  • Capital: what are you worth?
  • Conditions: what external factors impact your business, and how?
  • Character: will you repay the loan?


Once you have established a credit rating for your business, you must also monitor it for accuracy. Check your credit report quarterly to ensure that it contains no errors. Should you find any, report them immediately to D&B – and have documentation ready to support your claim!

By following these simple steps, your business credit report will be up-to-date, an essential factor for business success. For more information on business credit, visit dandb.com or call 1-800-280-0306.

 

 

The information and opinions provided by Dun & Bradstreet Credibility Corp. is provided "as-is" and are solely those of Dun & Bradstreet Credibility Corp. Dun & Bradstreet Credibility Corp. makes no representations or warranties, express or implied, with respect to such information and the results of the use of such information. Neither Dun & Bradstreet Credibility Corp. nor any of its parents, subsidiaries or affiliates shall be held liable for any damages, whether direct, indirect, incidental, special or consequential arising from or in connection with a business's use or reliance on the information or advice offered by Dun & Bradstreet Credibility Corp. You should consult a qualified professional to assist you in determining the most effective business structure for your particular business.

5Steps_Body.jpgBusiness credit is a point of confusion for many small business owners. Business Credit can be defined as the extension of trust through trade terms from one business entity to another in which one party receives something of value immediately and agrees to repay the other party at a future date on agreed-upon terms.  A D&B® business credit report is the qualitative and quantitative representation of a business’ overall financial health and stability through a wide range of predictive and historic business credit scores and can include associated business information.  Dun & Bradstreet Credibility Corp. offers business owners the proactive ability to establish, monitor, and build their own D&B credit profile and business credit scores and better understand how these scores may impact their business.

 

Remaining uneducated about business credit poses potential risk for business owners, while understanding and leveraging business credit can empower business owners in multiple financial situations. Oftentimes, companies examine your business credit to determine whether they want to do business with you. Your creditworthiness may factor into your potential partners’ decisions about things such as whether to extend you favorable credit terms and rates, sell to you, buy from you, lease equipment to you, or to lend you money. 


There are several things that need to be completed before you can qualify for business credit. Let’s go through each of them, step by step.

 

  • Name and Incorporate Your Business. This is an easy step. In fact, most states have made incorporating a business very simple. Companies like LegalZoom offer do-it-yourself guidance for incorporating a business.

 

  • Apply for an Employment Identification Number (EIN). An EIN in your company’s name can be obtained from the IRS by phone, mail, or fax, or online from www.irs.gov. The application process is quick and simple. Once you have an EIN, it will serve as identification for your business for tax purposes (similar to how your Social Security number functions as your personal tax ID).

 

  • Obtain Business Licenses and Permits. Depending on your city and state, you may be required to have certain business licenses and permits in order to do business. For U.S. companies, the Small Business Administration.

 

  • Open a Business Checking Account. Opening a business checking account is an important step toward separating your personal credit from your business credit profile. Banks vary in their offers for business accounts. Look for lower minimum balance requirements and lower transaction costs when evaluating a bank.

 

  • Open a Trade Account. A trade account is an account between businesses that can allow delayed payment for the exchange of goods. A Trade credit is credit that is extended by the supplier to the business acquiring the goods which allows for delayed payment. However, sometimes new businesses find that a trade credit isn’t immediately offered. Many times, businesses need to establish a relationship with the supplier by consistently paying C.O.D. (cash on delivery) for a period of time before the supplier is willing to extend a trade credit. Once a trade credit is offered, businesses should consider taking advantage of it, as trade accounts can be a good way to build your business credit history. While many companies want to start with C.O.D. terms, there are some companies that have been known to extend credit to new businesses, and some do not require any personal credit references. Such companies include:
    • UPS
    • Dell
    • FedEx
    • Staples
    • Lowe’s
    • Home Depot

Most business accounts have Net 30 terms, meaning any outstanding balance must be paid within 30 days of invoice. However, paying early has more perks for a business credit score than a personal one – your business credit score may improve with early payments. A good way to jump-start this process is to charge a small amount as soon as you get the account, then immediately pay the bill.

 

Other Business Credit Builders

Having a well-written business plan may also help you build business credit – even before you begin doing business! Sometimes vendors use a company’s business plan to help them decide whether to extend the company credit to purchase goods and services.


5Steps_PQ.jpgOnce vendors or lenders do extend you credit, it’s critical that your payments are prompt. It’s also important to make sure your vendors report those prompt payments to the credit bureaus. Vendor payment reports are one of the best ways a business can improve its credit history.

Finally, you can start building your business credit by securing loans that are guaranteed by the Small Business Administration (SBA) or other business associations. If you have good personal credit, SBA loans may be the most attractive option. However, you must be seeking a relatively small loan (usually no more than $350,000). In addition, you will need to provide your personal tax returns or other documentation that will support your high personal credit rating.

 

While the intricacies of business credit may be difficult for small business owners to fully grasp, we hope that we have set a foundation for understanding the basics and seeing all the possible ways good business credit can be leveraged in favor of the business owner. For more information on business credit, visit dandb.com or call 1-800-280-0306.



This article was originally published in Dun & Bradstreet Credibility Corp.'s Credit Resources.

 

The information and opinions provided by Dun & Bradstreet Credibility Corp. is provided "as-is" and are solely those of Dun & Bradstreet Credibility Corp. Dun & Bradstreet Credibility Corp. makes no representations or warranties, express or implied, with respect to such information and the results of the use of such information. Neither Dun & Bradstreet Credibility Corp. nor any of its parents, subsidiaries or affiliates shall be held liable for any damages, whether direct, indirect, incidental, special or consequential arising from or in connection with a business's use or reliance on the information or advice offered by Dun & Bradstreet Credibility Corp. You should consult a qualified professional to assist you in determining the most effective business structure for your particular business.

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