Many small business owners want to learn how to get business credit in this market. The idea of having credit for your business that is separate than your personal credit can be quite appealing. I mean, who doesn’t want to have thousands of dollars in credit at your disposal? And even better if this credit doesn’t show up on your personal credit report, right?
Unfortunately, it’s not as easy as most other companies or “gurus” would like you to think. In this market, you’ll have to spend a lot more energy to get business credit especially that which is unsecured and low doc / no doc. But with that said, with the proper knowledge and a good process, it is still possible to get business credit in today’s lending market! In fact, one of our Business Credit Workshop Clients obtained $70,000 in unsecured credit in under 30 days using our process outlined below (you can check out the case study here).
So, how do you get business credit in today’s market?
The overall process is to first prepare your company in such a way that banks are willing to lend to you, then know what banks to go after. Focus on local community banks and credit unions. Some national banks have great no-doc programs, but it is usually easier to get business credit from a local community bank. The reason is with national lenders, you either fit into their underwriting “box” or you don’t. With local community bank and credit unions, they take a common sense approach to lending and have a more personal approach to qualifying.
We have seen approvals as small as a few thousand and as big as $135,000 and higher. To determine how much credit you can obtain, consider how much revenue and sales your business makes. If your company is just starting out and you have no sales, then most likely, you will go for a no-doc loan (up to $50,000) or a business credit card with a smaller limit ($5,000 – $15,000 each). However, if your company has been established for a while and has sales and revenue figures (preferably two years or more of positive tax returns available), then you could apply for higher limits.
It’s going to be very important to have a relationship with the lender (usually the Vice President of Business Lending) so that you can discuss ball-park figures before applying for credit. Find a point of contact (POC) that you are comfortable with. Someone that you can speak openly with. A good Business Lender will know a lot about your company but before he/she submits your application will prepare your application and cover letter to show your best side. They will only reveal what is necessary to help you get approved and filter out what is not beneficial to your approval.
Prepare your company
One of the first steps in getting business credit is to make sure your company is in compliance with your local, county and state requirements. Make sure you are in good standing with the secretary of your state and with your local town and county clerk. You can order a standing certificate from the division of revenue in your state to confirm you are in good standing.
Also, make sure your company has sufficient business credit history with the business credit bureaus (read more on this in our free guide). It’s the same concept as trying to get personal credit. If you have no personal credit history, it’s hard to get a loan, right? With business credit, it’s the same idea, you need some credit history to get a business loan too. Now I realize you may be wondering, how do I get business credit, if I first need business credit history to get approved? Well, there’s a process for that too. And it involves setting up small trade lines of credit that report payment history to the business credit bureaus (Dun and Bradstreet, Equifax and Experian).
Before you can setup small trade line credit (also referred to as Vendor Credit or NET 30 Credit), make sure you have a Business Credit Profile setup with Dun and Bradstreet (first step would be getting your DUNS Number). Then have anyone you do business with report to the business credit bureaus the fact that you pay on time. This is very important when trying to get a business credit card, business loan and/or larger business lines of credit. Essentially, you want to have small trade lines of credit established to build-up your business credit profile, before you apply for the bigger types of business credit (lines of credit, loans, etc).
Now that you have the foundation laid and have a presence with the business credit bureaus, determine what your business has to bring to the table. Ideally, you will have tax returns with solid revenues (I’m saying solid because this is a big variable among our readers, but think positive cash flow), assets and the person applying (CEO, CFO, or credit partner) would have good personal credit habits (and a good FICO score). Now assuming this is your case, it will be easy to move to the next step.
For those that don’t have profitable tax returns, assets or good personal credit; then you will have to take additional steps and will most likely have to do no-doc, unsecured applications. Our case study previously mentioned in this post was no-doc and unsecured, by the way. The applicant did bring a good FICO score to the table however. And for clarity, the business credit does not show on his personal credit report. But being that the line of credit was no-doc and unsecured with no pledged collateral, the bank wanted to check the credit score of the applicant (note: the applicant does not have to be the business owner).
Where can you get business credit?
The best places to get business credit right now are through local, community banks and credit unions.
The simplest technique is to simply call 10-15 banks near you that are local banks (not national banks). The reasoning is complex, but to put it simply: most local Business Banks are very competitively lending to small businesses in this market and you get a more personal approach and customer service experience. Try googling nearby banks and call any banks that you may not have heard of. Trust me, no matter what area you live in there are at least 50-100 community banks in your state that are eager to hear from you. This comes from years of experience working with coaching clients to help them get business credit.
You can also reach out to banks that you see advertising to small business owners and banks you see while driving around that you may not have heard of. If a bank is spending money on a newspaper ad or a billboard, then they have money to lend and most importantly, they are in a “lending mood”.
Once you have a list of banks to speak to, start calling each bank and just ask a few general questions:
- Do they offer business checking accounts
- Do they offer business credit products (credit cards, loans, lines of credit)
- Who is the best person to speak to about the requirements for business credit? (Point of Contact / POC)
With these three simple questions, you’ll have your list narrowed down to a few banks that offer the products you are looking for and you will also have the best person to speak to. At this phase, you’ll want to introduce yourself to the POC and setup a time to meet.
Meeting with the Point of Contact at the Bank
At the meeting, you are not necessarily applying for credit, but rather getting to know the lender and having them get to know you as well. In some cases, the banker will tell you nothing at all about their underwriting requirements. Those are the banks, I usually won’t work with. But some POCs are very open with their requirements and will often tell you what the underwriting guidelines are!
Make sure to let them know that you want to have your business be well prepared before making application and you don’t just want to submit an application and “see what happens”. Find the person or the bank that wants to build a long term relationship with you and is willing to share with you some tips on what it takes to get approved. Often, the banker will point blank tell me: to get approved for up to $50,000 you need to state about $400,000 in revenue (gross sales). Then they’ll tell me that the loan is no-doc / low-doc under the $50,000 mark. Now this is just an example, the numbers will be different for each bank, but it’s often that banks will lend 10-15% of gross sales (Yes, gross sales, not profit!).
At this point, you’ve prepared your company and found your lender. It’s time to make application! A good banker will help you fill out the application and when they submit it to underwriting, they’ll usually write up a few words on why they think you’re a good fit for the bank. If you do not get approved the first round, don’t be discouraged, I like to say that denials are part of the approval process. Learn what you can from the process and re-apply or move to the next bank if you have to. I find that more than 20% of declines can be overturned by the POC. One of the advantages of working with a local bank is that if you have enough rapport with your lender, he or she can personally speak to the CEO of the bank or lending committee about your application (this would never happen with a big national bank!). And often they have pull with the underwriters to get your application pushed to the finish line or at least get a counter offer!
This process of getting business credit does take a lot of work, but focus on what’s on the other side: Business Credit! Business credit that can be used to dramatically improve your business, fund your accounts receivable, increase your marketing (hence improving your profit), buy equipment/inventory or give you the money needed to expand!
I always have more to share, so if you could use some personal help on getting business credit, please feel free to shoot us an email or give us a call at (888) 218-6354 and we’ll put together a plan and a list of local banks to help you hit your goals.
Written by: Joe Lawrence while listening to Wonderful Chill Out Music Beach Lounge Mix by Tekiu