Are you feeling stressed because your income is shrinking? Many people feel the pressure to quickly put together a loan package. These three proven methods will increase your chances of getting business loans.
You can apply for a loan with your business name instead of your given name. For example, you could use “Sarah’s Block Company”, your business loan, to replace your given name, “Sara Smart.” You must apply for a loan under your business name because it is not a personal loan. Although banks and other loan institutions will help you with a business loan, they won’t lend money to an individual. A corporation or LLC can increase your chances of success.
Sole proprietors have trouble getting business loans because they don’t have the same credibility as corporate owners. A business can project a better image of success than a person. This is why lending institutions work better to help businesspeople. A sole proprietor is a person who ‘appears to’ be acting in their own interest as an individual, not a business. For credit reporting agencies, sole proprietor loans are rated on their personal credit history only. This is not a good sign for loaning institutions.
Corporations may mix personal and corporate debt. This is a trap that many people fall for. Imagine that you are a contractor and get a loan to build a property. But you also use the money to repair your home. The financial company will not see this as a legitimate way to make money, even though there are many ways to do it. The IRS agent will not see it that way at tax time. There is also a double penalty if you do this. If your expenses are merged, the IRS could choose to ‘disallow’ all your business expenses. This could quickly become what people refer to as “the stuff that hits it the fan.”
There are many examples of business and personal expenses being combined. Let’s say that you borrow money for a computer business, but have extra money from the loan. You might think that the extra money could be used to buy a new computer for your kids.
A credit card that you have opened in your business’ name is the opposite of a business loan. You will see the same results if you apply the same behavior to the credit card as you did with the business loan.
This second outcome is that you now have a chance of damaging your credit score. This affects everything with the passage of time. The loan may not be available if you really need it – or at a later time.
Credit scores can be unpredictable. Credit scores are influenced by past performance, current and previous balances, and how close your credit card limit is. (For example, do your credit limits be $500 and have you charged $480 for that credit card). Consistently? This means you are in debt at more than 90 percent of your credit limit.
If you have a few over 50% of your “AVAILABLE” total balance on your credit history, your approval rating for a business loan drops to zero. Your total available balance is the amount you are listed as having access. For example, if your balance is $250.00 and you have a balance of $500.00 you can charge $500.00.
Do not do it. Never charge more than half of your credit card balance. A difference of even $1.00 can make a big impact on your credit score (a positive one).
A credit broker is a person who can help you get the best deal on a car, or any other item. A credit broker’s job is to get you the best deal possible by taking your business and personal identification. Your credit score drops an average of 2-4 points for each inquiry received from individual ‘dealers’. This means that if your credit broker finds 40 credit buying ‘deals for you while you were car shopping, your total credit score will be approximately 80-160 points. Your credit score will plummet if you have marginal credit. You will also see an increase in the interest rate that you are eligible for as your credit score falls. They love it. It’s a bad experience for you.
All of this will lead to you being eligible for a loan. Your personal credit score is what your banker will use to determine if you are a good risk for a business loan. Your credit score is essential to get a business loan. This is an important thing to keep in mind when starting a business. Protecting yourself is what matters most.
You can apply for more than one loan institution for your business. This is your company: It’s a corporation with clean credit records. Since you are brand new in business, and have not yet applied to a loan under your business name for a loan, there is no record of debt repayment that can be used as a reference when applying for a bank loan for business. You are expanding your company and need to make it even more successful. To manufacture your product and deliver it to the customers that you have added, you will need to hire additional staff and specialized tools.
You don’t know where you can go to get that money. No loan history.
Do not let your lack of experience with business loans stop you. You can figure out your next steps and request several small business loans, instead of one large loan. This method will dramatically increase your chances of getting a business loan. You’ll also gain valuable experience in creating a loan history for your business.
It may be more beneficial to apply for an unsecured credit line that is based on your income than a full-blown loan application. This can often make the difference between getting the money you need or the approval you desire. These lines of credit are easier to obtain because there are fewer restrictions. They also give you a history of your business to refer to the next time you want to grow or expand your business.
You could also borrow up to half of your credit card balances as unsecured loans to help you get through the expansion phase. Keep in mind late payment penalties and credit card interest rates. You will regret it if you don’t plan for the worst.
This is just a 3-step process to ensure your business loan success.