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5 Credit Report Issues that Trigger New Business Credit Line Denials

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New Business Credit Line

In today’s post we are going to share the top five credit report issues that we see on an ongoing basis that trigger a denial for a new business credit line. After reviewing hundreds of credit reports each month for pre-qualification there are certain patterns that stand out when it comes to those who don’t qualify for business credit lines. new business credit line

Now I’m not talking about the typical triggers for a denial of credit such as low credit scores, derogatory items, open collection or a recent bankruptcy. What we’re going to share with you are the not so obvious issues that come up during our pre qualification reviews.

After reading this post you will have an in depth understanding into our underwriter’s world and what it is they look out for during a review. Did you know getting pre-qualified for funding is based on a lot more than just credit scores?

Time and time again you’ve heard me talk about having a 680+ credit score to pre-qualify for our business credit cards that report only to the business credit reporting agencies. What prompted me to write this post was to go more in depth since credit scores are simply a benchmark number but not the only factor that underwriters look at.
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Small Business Credit Lines: How to Secure a Business Line of Credit

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Small Business CreditAs a small business owner having access to capital continues to be a growing concern as we start off the New Year. The majority of business owners prefer small business credit lines because it allows a business to establish a significant amount of cash on demand to make purchases that are too large for a credit card and too small for a loan.

I always advise my clients and members to plan applying for a business line of credit during times of growth and cash flow. Banks are more likely to approve a credit line when it doesn’t need the funds compared to one that is financially strapped.

You can improve your chances for securing a business line of credit by listening to my podcast titled How to Secure a Business Line of Credit.

If you think you’re business is just making it fine despite the current economic times and you don’t need the credit line think again! The reality is that your business will at one point require an influx of cash in order to cover unforeseen operating expenses, development, expansion, legal fees, inventory or a range of other items that a business may require in order to grow.

To access business credit insider secrets, premium vendors, leasing companies, business credit cards, and lenders that report to all the major business credit bureaus become a member of my Business Credit Insider’s Circle. Submit your name and email below for details and receive a free audio seminar ($597 value) =>

To Your Success!

Marco Carbajo

About the Author

Marco Picture 2009 Super Small pic

Marco Carbajo is a business credit specialist, author, speaker, and founder of the Business Credit Insider’s Circle. He is a weekly columnist for Dun & Bradstreet Small Business Solutions, a business credit blogger for All Business & American Express Small Business and author of “Eight Steps to Ultimate Business Credit” and “How to Build Business Credit with No Personal Guarantee.” His articles and blogs have also been featured in The Scotsman Guide, Alltop, Entrepreneur Connect, and Active Rain.  

Business Credit Lines: How to Qualify in 2010

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Mortgage ApprovedFor small business owners, gaining access to capital continues to be a concern as we start off the New Year. The majority of my clients prefer business credit lines because it allows them to establish a significant amount of cash on demand to make purchases that are too large for a credit card and too small for a loan. However, when it comes to qualifying there are specific steps that I advise my clients to establish in order to improve their chances of approval.

 

First of all, the best time to apply for business credit lines is during times of growth and cash flow. Banks are more likely to approve a credit line to a business when it doesn’t need the funds than when it’s financially strapped. I would strongly encourage you to adopt a “dig your well before you get thirsty” philosophy.

If you think your business is doing just fine despite the current economic times and you don’t need a credit line, think again. The reality is that your business will at one point require an influx of cash in order to cover unforeseen operating expenses, development, expansion, legal fees, inventory, or a range of other issues that a business may face in order to grow.

So when you apply for a credit line and your business is coming from a position of financial strength — if you have a strong bank rating, business credit scores, good cash flow, and so on — your chance of getting approved is much greater than if you apply from a position of weakness.

Second, keep in mind that it’s much easier to get approved for, say, a $50,000 line of credit than a $100,000 line, simply because of the documentation and number of financials required for larger credit lines. Most banks only require a low 5 bank rating, a favorable business credit rating, and personal credit scores of 680 or greater to approve a $50,000 line of credit.

If you’re applying for a credit line greater than $50,000, you’ll also be asked to provide two years of personal and business tax returns, profit and loss statements, and financial statements. The difference in documentation is substantial when it comes to the amount of credit you apply for.

These are the five steps that I review with my clients in order to qualify for a business credit line:

  1. Bank balance rating: This is the average minimum balance maintained in your account over a three-month period. A $10,000 balance will rate as low 5, a $5,000 rate is mid 4, $999 is high 3 and so on. You should maintain a minimum low 5 for at least three months. If you don’t have at least a low 5, most banks will assume your business has little ability to repay.
  2. Bank rating cycle: You’ll want to maintain at least a low 5 for the three months prior to applying for a line of credit or larger loan.
  3. Account management: NSF (bounced) checks destroy your bank rating. From this point forward, NSF checks are something you can’t let happen. I suggest you add overdraft protection to your account as soon as possible.
  4. Business credit reports: Dun & Bradstreet reports, Small Business Equifax, and Corporate Experian should reflect your solid business credit history and scores.
  5. Personal credit score: Your score should be 680 or higher.

Maximize these five factors and you can greatly improve your chance of getting approved for a business credit line. The important point to remember is that banks are in business to lend money and they make money from the interest they charge. But when they extend a line of credit they want to minimize the risk as much as possible.

To access business credit insider secrets, premium vendors, leasing companies, business credit cards, and lenders that report to all the major business credit bureaus become a member of my Business Credit Insider’s Circle. Submit your name and email below for details and receive a free audio seminar ($597 value) =>

To Your Success!

Marco Carbajo

About the Author

Marco Picture 2009 Super Small pic

Marco Carbajo is a business credit specialist, author, speaker, and founder of the Business Credit Insider’s Circle. He is a weekly columnist for Dun & Bradstreet Small Business Solutions, a business credit blogger for All Business & American Express Small Business and author of “Eight Steps to Ultimate Business Credit” and “How to Build Business Credit with No Personal Guarantee.” His articles and blogs have also been featured in The Scotsman Guide, Alltop, Entrepreneur Connect, and Active Rain.  

Business Credit Lines: Are You Protecting Yours?

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Protect Business CreditWe all know that banks are in caution mode right now and suspending business credit lines is obviously an effective way to reduce the risk on a bank’s balance sheet. As they continue to cut small business credit lines what can you do to protect yours?

 

Not too long ago a close friend of mine who own a digital imaging company based here in Michigan had his line of credit frozen and the explanation from the bank was that his house had lost over 30% of its value. It didn’t matter that he was never late on payments and was a long standing customer for over 10 years.

 

Rather than continuing to talk about the negative impact it’s had on thousands of business owners I would prefer to share with you specific factors that flag and trigger a bank to change the terms of your business credit lines. To prevent a bank from cutting yours, you need to reduce your risk level.

 

Avoiding the following red flags will reduce your risk level and keep your business off the radar screen.  Keep in mind that while these are not the only factors they are the most common ones.

 

Missed Payments

Missing payments can easily raise a red flag so at all costs catch up on overdue payments and pay more than the minimum.

 

Poor Financials

Banks re-evaluate their business customers using their tax returns and projected income statements to determine their creditworthiness.  Weak earnings for the year can trigger an adjustment to the terms of your line of credit.

 

Reduced Bank Rating

For example – If your balance rating was a “Low 5” ($10k for 3 month period) and drops below to a “Mid 4” ($5k for 3 month period)

 

Depreciated Value

If you have secured your credit line using collateral that has depreciated in value or business receivables that have reduced significantly then in order to stay off the radar add additional collateral to offset the depreciation.

 

Lower Credit Scores

A drop in credit scores and new derogatory items showing up on personal credit files are a major contributor to credit lines being cut across the country. Avoid making large purchases on credit cards that could put your debt to credit limit ratio above 30%. In addition be sure to monitor your credit on a regular basis and avoid inquiries.

 

One of the best ways to protect your business credit lines is by NOT putting all your banking and lines of credit in one basket. It scares me to think of how many business owners across the country have put total dependence on one bank to handle all their deposits, withdrawals, checks, savings, credit lines, loans, credit cards and so on.  It’s important to diversify your business banking relationships and credit lines.

 

By establishing multiple business credit lines with several banks will put you and your business in a much safer and stronger position. So if one of your banks happens to reduce or even cancel your business credit line you still have several other credit lines readily available.

 

You can protect your business credit line during these tough economic times but it requires you to be proactive and diligent in reducing your overall risk level.

 

To access business credit insider secrets, premium vendors, leasing companies, business credit cards, and lenders that report to all the major business credit bureaus become a member of my Business Credit Insider’s Circle. Submit your name and email below for details and receive a free audio seminar ($597 value) =>

 

To Your Success!

Marco Carbajo

About the Author

Marco Picture 2009 Super Small pic

Marco Carbajo is a business credit specialist, author, speaker, and founder of the Business Credit Insider’s Circle. He is a weekly columnist for Dun & Bradstreet Small Business Solutions, a business credit blogger for All Business & American Express Small Business and author of “Eight Steps to Ultimate Business Credit” and “How to Build Business Credit with No Personal Guarantee.” His articles and blogs have also been featured in The Scotsman Guide, Alltop, Entrepreneur Connect, and Active Rain.  

Business Credit Lines: How to Qualify

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Bank Credit picWhile most of you are familiar with the stories surrounding several national banks that have cut business credit lines for small business it’s important to note that there are state banks, credit unions, and some regional banks that are issuing credit lines to small business. Qualifying for small business credit lines is not as difficult as you are led to believe.

When you are prepared and educated on the approval process you can have full confidence in knowing that you can obtain as much bank lines of credit as you need with as many banks as you wish. Now, let me be the first one to admit that the following information does not guarantee an approval but you can bet that it does greatly increase your chances.

Hopefully you already have a  business bank account and a comfortable relationship with a banking contact.  I suggest you apply for no more than a $50k line of credit because in most cases you will not have to provide tax returns or profit and loss statements. This makes the application process much easier with less paperwork. I have put together the following checklist for you that can be used with as many banks as you wish to establish lines of credit with:

  1. Business credit file with a minimum 80 paydex score
  2. Personal credit score of 680+
  3. Bank rating classification of low 5 (minimum)
  4. Balance rating classification of low 5 (3 mos prior to applying)
  5. No NSF track record

Your small business banking history is vital to your ability of being able to get approved for a line of credit. Your bank will look to see how long that relationship has been established, so once you get your account set-up don’t change banks! There’s nothing wrong with having several business bank accounts and relationships with multiple banks.

Keep in mind that in order to qualify banks will refer to your business bank account because it reflects how you manage your cash flow. Lenders want to know that your business cash flow is capable of handling the business debt and expenses on a consistent basis. Bank accounts with low average daily balances, or that show many NSF returned checks, can get your business loan applications declined right away.

If a loan amount requires a $1,000 month payments then lenders need to see at least a “Low 5″ bank rating. Your “Bank Rating” is based on your average daily minimum balance over the last 3 months. Let’s take a look at these numbers:

Bank Rating Account Balance Bank Rating Account Balance
Low 4 $1,000 – $3,999 Low 5 $10,000 – $39,999
Mid 4 $4,000 – $6,999 Mid 5 $40,000 – $69,999
High 4 $7,000 – $9,999 High 5 $70,000 – $99,999

         

Three Factors Banks Review For Approving A Small Business Line Of Credit

 

1.  The first factor is your balance rating. This rating is your average minimum balance maintained in your account over a three (3) month period. $10,000 will rate as “Low 5″, $5,000 rates as “Mid 4″, $999 rates as “High 3″, and so on.  You need to maintain a minimum “Low 5” bank rating ($10,000) for at least 3 months. Unfortunately, without at least a “low 5″ rating, most lenders will assume your business has little ability to repay.

2.  The second factor is the bank rating cycle which is three (3) months. You’ll want to have at least a low 5 for the three months prior to applying for a line of credit or larger loan.

3.  The third and final factor has to do with how you manage the account.  NSF (bounced) checks destroy bank ratings.  From this point forward, NSF checks are something you can’t let happen. I would suggest that you add overdraft protection to your account as soon as possible.

This system works every time as long as you’re personal credit scores are 680+ not in the low 500 range. If your scores are in the low 500’s, it’s best to start repairing your credit and consider a CD Secured loan with your bank. Remember, you can set up $50k credit lines with as many banks as you have accounts with! The best part of all is this is just using one of my business credit building strategies!

P.S. CLICK HERE to join as a business credit member and obtain access to my private list of banking contacts and business credit resources.

To Your Success!

About the Author

business credit expert

Marco Carbajo is a business credit specialist, author, speaker, and founder of https://businesscreditbuilders.org. Want to learn more about how to build business credit and obtain unlimited financing for your business? Claim Marco’s popular FREE business credit seminar ($597 Value), available by simply submitting your email below =>

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