Top 5 Best Practices to Strengthen Your Business Credit Application

1 – Know what you want.

If you have a goal to expand your business, be specific about what expansion truly means. Are you adding more office staff? Purchasing or upgrading equipment? Are you moving to a larger storefront? Each of these needs has a different financial solution. By describing your business goal as part of your credit application, you will better position yourself for asking for the right credit product.

For example, you may be a dental practice that needs to purchase and upgrade office equipment, as well as increase your staffing for general office help. These are two different financial goals with the same business goal. Financing your equipment can be accomplished with a specialized term loan or leasing options while financing working capital for increased staff could be achieved with either a term loan or short-term credit line options. Having an in-depth discussion with your banker about your financial goals and business needs will help you identify the right credit product.

2 – Know what you have.

The amount of financial statements (personal and business) and the information requested by banks can be a little overwhelming. Getting yourself organized with this information ahead of time enables you to present your credit application with confidence. Have your accountant or bookkeeper help with keeping your financial information in order. A good practice is to review your financial packet once a quarter to ensure it is ready when you need it.

The financial packet should include both business and personal bank statements, tax return statements (minimum 2 years), copies of any business filing documents (i.e. Articles of Incorporations, Certificate of Limited Partnership, DBA Filing, etc.), revenue and expense information, current outstanding credit (amounts, terms, rates, etc.) and any financial projections you may have for your business.

3 – Know what they want.

If you have your financial packet in order (as stated above), then you are in a good position when working with your banker. Banks typically require at least two years of financial statements and all current deposits/credit information about your business. Your personal credit history (all majority owners in the business) may also be considered for any business credit application. Some basic credit evaluation parameters a bank will look at are:

• Loan Amount: Target your request to be no more than 8-12% of your annual revenue. This is considered as part of your ability to maintain cash flow and meet your credit obligations.
• Credit Score: Your personal credit score (and all guarantors for the loan) will be considered as part of the request, so know your scores in advance. Typically, a bank will look for at least a 700-credit score, so ask us what our minimum requirements are.
• Balances and Profitability: With a complete financial application (as outlined above), your banker should be able to quickly evaluate how well you manage your cash flow and be able to assess the overall profitability of your business. These are important items any lender will require to determine your repayment capability.
• Industry: Some industries are considered “high-risk” (such as money-providers, construction, vehicle sales, convenience stores, religious/non-profit organizations, alcohol sales, gambling, etc.), so be prepared if you operate in an industry that falls into these categories. Operating in a high-risk industry means that your banker will need extra information from you to ensure they are meeting regulatory and policy requirements and to provide you the appropriate financial solutions. Ask your bank what industries they consider high-risk by providing them your business’ NAICS Code (available on your business tax return.)

This process can be beneficial for you as it will provide your banker with all the information they need to provide the best credit solution, as well as determine other depository and transactional solutions that you may not have even considered. These solutions can either save you time or money. Banks will usually seek to establish a relationship with a business that needs a full suite of banking solutions. This will be to your advantage as well, as relationship banking may include business credit rate discounts or fee waivers based on the entire relationship.

So, get to know your banker and let them get to know you! It’s a win-win relationship.

4 – Know how to engage your banker.

Bankers know that your time is valuable and limited. They should always work to engage with you at your convenience. This could mean scheduling a few meetings over a couple of weeks, or months, to ensure they have the time to understand your needs. They should offer options for submitting your financial information and documentation, such as by email or securely online, to guarantee confidentiality.

It is reasonable to assume that regular meetings (at least once a quarter) will be scheduled by your banker to stay ahead of your current and future financial needs. If your banker is not reaching out to you proactively, seek a bank that will. An engaged banker is a valuable resource.

5 – Know how to expand your financing options.

Providing complete financial packets, keeping your finances organized, and having routine meetings with your bankers will enable you to be fully aware and educated about the various financing options available to your business. Each industry is different and has specialized financing needs. Having a banker understand your needs and business goals will provide you access to financial services that will enable business success.

Bankers understand that business owners are experts at their business (that is why they are in business in the first place), but business owners may struggle with financing logistics. Relying on a knowledgeable CPA or bookkeeper is vital, but also having an engaged banker as part of your financial advisory team will keep your business financially prepared and healthy. Your banker should be knowledgeable about your specific industry to provide the right recommendations.

Look for a banker that talks about your business first, not about their services. Financial solutions should be part of the conversation only after time has been spent discussing what is important to you.