Why Business Age Matters to Lenders
One of the many factors that a lender considers when evaluating the credit worthiness of a business is their track record. This means the longer the business age, the longer the track record. This can present a huge disadvantage for newer businesses and recent start-ups.
In fact, according to the SBA, as a potential loan applicant, an owner of a new business needs to show evidence that there is a track record of profitability and success in a similar business endeavor.
The business age impacts the business credit profile which a lender uses to make decisions about your business. In other words, the more years of credit history that demonstrate your business can properly use and repay its business loan obligations, the better.
“Thin” Credit Profiles
If you’ve ever been told that your business credit profile is too “thin,” this simply means there’s not enough credit history to accurately evaluate your business. A potential lender tries to predict what your business will do in the future based upon what it has done in the past.
Consequently, if your business has a lengthy track record of borrowing, making regular payments, and repaying debt in a timely manner, your business may be a better risk than a company with a very short history and business age.
This means that if you’ve only been in business for a year or two, you’ll need to take some time to build a strong credit profile. The downside is that there are no real shortcuts to building your profile. Although there are no quick fixes, there are steps you can take.
5 Tips for Building a Solid Credit Profile
Here are some things you can do now to build a profile despite a shorter business age when looking for a small business loan:
- Realize it does take time: Be prepared to invest some time. The good news is that 12 to 24 months of effort and positive activity will be make a significance improvement in your credit profile.
- >Know your credit profile: Your business profile is made up of your credit history and details about your business. It includes information such as your time in business, your industry, and other similar information. It is critically important to be sure your information is accurate.
- Stay current with all your bills: The best way to build a strong profile is to pay all your business bills on time. Having a lengthy business age doesn’t matter if you make many late payments. Too many late payments will quickly hurt your business credit profile.
- Don’t rely on personal credit: When starting a business, many entrepreneurs will use the equity in their home or personal credit cards to finance it. However, this does not build your business credit profile. Having a business credit card or credit from vendors and suppliers is a good way to establish business credit.
- Be sure your credit history is being reported: If it’s not, you may be building a good credit relationship with card companies and vendors without building a strong credit profile. No matter your business age, no reporting won’t help you.
Also, check to see where your credit history is being reported. For example, many online lenders report to the bureaus while others like merchant cash advance providers typically do not.
Overcoming The Short Business Age Burden
Building a strong business credit profile is one of the most important things you can do to access borrowed capital with a shorter business age. And this can take time.
However, these five tips will help you build a business credit profile that will provide you options when it comes time to apply for a small business loan.
