All business owners need to access funding and lines of credit to grow their business. YET OVER 90% OF SMALL BUSINESS LOAN APPLICATIONS ARE REJECTED BY THE LENDER — causing half of new businesses to fail in the first three years.
The sad thing is that many of these loans are rejected for simple reasons that are easy to fix, provided that the business owner is aware of them.
But that’s also the good news. By simply paying attention to your Businesses Financial Credibility, you can take the initial steps toward making your business credible in the eyes of lenders — which will accelerate your efforts toward getting the financing needed to support the growth of your business.
To begin, you need to understand the criteria that lenders use in evaluating the credibility of your business (known as “Lender Compliance”) these criteria are the foundation for building a fundable business.
- Is your business its own entity? (e.g. a corporation or LLC) If not, any loan extended would almost certainly be a personal loan. There are important reasons to keep business credit separate from your personal credit.
- Have you established a separate bank account for your business? Lenders often consider this to be the true start date of your business rather than the corporate filing date.
- Does you business have its own business location? Seventy percent of business credit providers will not make business loans to home-based businesses.
- Does your business have its own phone number? If not, your loan application may be declined — often without explanation.
- Is your business listed in the national 411? (Directory Assistance) A small, easy to do item that adds credibility to your business.
- Does your business have a Federal EIN? (Employer Identification Number) This, too, distinguishes your business as an entity separate from your personal assets.
- As a corporation or LLC, is your filing current in the state in which it resides? If not, that’s an instant decline.
- Basic Infrastructure items. A number of smaller items are also often considered by lenders. For example, does your business have a website? a fax number? proper licenses? a business e-mail address (rather than AOL, Hotmail, Yahoo)?
With all that goes into running a small business, all too often the knowledge and systems needed to make a business fundable are not attended to until the business owner needs credit — and at that point it is often too late.
Fortunately, building business credit while protecting your personal assets is not difficult if given proper attention along the way. Working with a proven system and accessing expert advice provides all businesses with the tools needed to be FUNDABLE. Don’t wait until it’s too late.