On October 8, Lendio cohosted a panel with the Mastercard Center for Inclusive Growth on equity in business lending. During the 90-minute session, panelists fielded questions from the audience. Some weren’t covered due to time, but some of the questions are common. To help business owners access the information they crave, we’re rounding up some of the frequently asked questions about business loans, lenders, and anything else under the business lending umbrella.
Some loan products do not depend on profitability in a tax year. If your business has netted a loss over the past year, you may still be able to qualify for financing.
Lenders typically like to see 4 things on your books: a solid business credit history, an income statement, your debt-to-income ratio, and a balance sheet. Even if your business wasn’t profitable in the last year, keeping clear records will demonstrate your understanding of your business and its financial status.
It is possible to qualify for a small business loan with bad credit. The first step you want to take is to ask potential lenders if they have strict credit requirements. Many traditional lenders, like banks, do. If you won’t meet those credit requirements, it’s better to know up front. It will save you the hassle of filling out the application only to find out you’re not eligible.
This is one instance where there’s a huge benefit for a borrower who applies through a lending marketplace. Through a lending marketplace, you can access multiple lenders with a single application. While some lenders in the marketplace may have strict credit requirements, many others don’t. When you apply through a marketplace, you can find out if your business qualifies for more than one lender and compare offers—with no effect on your credit.
Businesses with lower credit scores can often qualify for merchant cash advances and business credit cards. You may also be able to qualify for equipment financing or a line of credit. For a more complete rundown of how to secure capital when you have bad credit, consult the Guide to Getting Financed With Bad Credit.
To help improve your credit going forward, avoid these 7 mistakes business owners make that hurt their credit:
3 major credit reporting agencies handle business credit scoring. Dun & Bradstreet, or D&B, is one of them. The other 2 are Experian and Equifax. Dun & Bradstreet is the biggest of the 3 in the business credit space, so building your business credit likely means that you’ll want to have it reported to Dun & Bradstreet. That said, you can build your business credit without working directly with the credit reporting agency.
You can improve your business credit score with the following:
These steps are all reported to the credit monitoring agencies, so they will help build your business credit without you having to work directly with one of the agencies.
One caveat: it’s advisable to check your business credit report for errors. Potential errors could be dragging down your score and limiting your access to capital. In those instances, you may have to work directly with one of the agencies. If you don’t want to go through the headache of mountains of paperwork (yes, there will be a good deal of paperwork), Lexington Law can help you manage business credit repair.
In light of the pandemic, lenders haven’t really gotten stricter in terms of who they will lend to. Ultimately, it comes down to revenue. If your business has continued to generate typical revenue through the pandemic, then you’re likely to qualify. If your business has dropped below a certain revenue threshold during the pandemic, you may have a harder time securing a loan.
When you apply for a loan now, you can expect a little more paperwork. Many lenders now require at least 6 months of bank statements, compared to the 3 months of bank statements they typically requested before the pandemic. They will also request to see a current month-to-date bank statement before they even look to underwrite a loan.
Startup loans are designed to help accelerate the growth of newer businesses that don’t yet have the time in business or credit history to qualify for other business loan products. When you apply for a startup loan, lenders look at your personal credit score rather than a business credit score. For more information, you can consult our guide on Startup Loans With No Credit.
For an in-depth look at equity and access to business capital, check out the replay of Making Access to Capital More Inclusive.