How to get credit for your business
Ah, corporate credit. I’ve been trying to help a few clients get loans for expansion and inventory needs. It’s been pretty tough. Banks have been very reluctant to lend any type of money, let alone a business loan. I don’t want to discourage anyone from applying for a loan, because it really depends on the nature of your business and your personal and corporate finances. At the very least, banks will ask for the following:
At least three years of financial data for the business
Personal taxes of the shareholders/members/partners for the past three years
Profit/loss statement for the company for three years
Sales for three years (the banks want to see a steady growth trajectory)
A company balance sheet
A personal balance sheet from the company’s owners
A business plan
A loan proposal
The best thing to do is to approach the bank where either you or your company bank with and talk with your personal banker. if you don’t have a personal banker, make an appointment with a loan officer.
Another good choice is to contact the local branch of the small business administration. While the SBA has been struggling lately, it is possible that they can point you to a bank in your area that specializes in small business loans.
If you want to establish some basic corporate credit quickly, you should have the company apply for an American Express business card or some other type of corporate credit card. If the credit score is an issue, ask if you can apply for a secured credit card. Note that this will not lead to an immediate loan, but will help establish credit moving forward.
Another option is to talk with your suppliers, and ask if you can pay in 30-60-90 day increments. This will allow you to develop credit with suppliers, and free up some of your cash for other projects or to acquire additional inventory.
I’ve spoken to a few loan officers to determine why certain loan applications have been rejected. The response I typically get is that banks don’t want to lend unless the company has lots of cash on hand, the owner/shareholder of the company signs a personal guarantee, and the owner can actually pay the guarantee. Basically, if you are going to ask for a $50k loan, then you need to have $50k in the bank. Of course, this varies on the bank. The loan officers have also said to just keep trying. They suggest that you approach a number of banks at the same time, and maybe you can pit one against the other. What you should not do is approach a bank that you have no relationship with, unless that bank was recommended by the SBA.
To summarize: best starting point- first, try the SBA; next, try your bank.
Article can also be found in Spanish at Inversionario.com