Are You Ready to Start a New Business? What Your Credit Score Says About You
By April Lewis-Parks
Starting a new business requires capital, and not all entrepreneurs have a fat trust fund or wealthy investor to rely on. If you’re looking for some capital but aren’t ready to hit the Shark Tank to get it, a loan is a good option. Those three little numbers in your credit score say a lot about you when it comes to landing this type of loan, so it’s important to know what story they’re telling.
Your credit score tells lenders how reliable you are when it comes to your finances. Reporting agencies use the information on your credit report to determine your score. Your credit report includes details on lines of credit and loans that you’ve taken out. This includes student loans, mortgage, credit cards, and auto loans. Creditors will look at your available credit in comparison to the amount of debt you have. Ideally, you’ll have a great deal of available credit and very little outstanding debt.
Your credit report also shows whether you’ve made timely payments on your outstanding debt. Lenders want to see up-to-date accounts with a long history of timely payments. Late payments or a bankruptcy within the last seven years will show up on your report and negatively impact your credit score.
Your Chances of Getting Approved For a Loan
When you’re starting a new business, you have to get a loan based on your personal credit and not business credit. FinancialWeb recommends that your personal credit score be 700 or higher to get a good personal loan. If you’re seeking a business loan and not a personal loan, you need a score of 800 or higher. While other factors will come into play, this number can stop the application process cold if you fall too far below the guidelines.
In addition to you credit score, a lender will also want to see some evidence that you’re well-equipped to start a small business. Some things that will improve your chances of landing a loan include:
• A solid business plan that’s well-researched and very detailed. Your lender wants to know how you plan to spend the money and a business plan shows them that you know what you’re doing and have a good plan of action.
• Consulting a financial expert. You’ll want to speak with someone who can put you on the right path, and who understands the various challenges you’ll have to overcome. Do your research, however; make sure that the financial expert you choose has the requisite experience and qualifications to help you. Check out Peter Briger’s resume, for example, if you want to see what a qualified financial expert’s resume should look like.
• Experience in your chosen industry. Most lenders want to see three years of solid work experience in the industry that you’re planning to work in. If you’ve never set foot in the kitchen of a restaurant or managed any type of dining establishment, you’re not a great candidate for a loan to launch a new restaurant.
• Having Some Amount of Equity. While you may not have a lot of money to sink into your business, it’s important that you put some of your own funds into the venture. Lenders want to know that they aren’t the only ones with something to lose if your business flops.
If your credit score isn’t high enough to get a loan, start paying off your credit and establishing a strong financial history to get that number where you want it. A good score lets lenders know you deserve the money you’re after because you’re a smart investment.
April Lewis-Parks has more than 15 years of experience in the financial sector, she is a certified financial counselor, and a consumer affairs advocate. As the director of education and public relations for Consolidated Credit she is dedicated to generating awareness about personal finance issues and acts as their consumer affairs advocate. As host the of MissMoneyBee.com, she promotes financial education and offers timely and informative personal finance articles to educate the public. April’s promotional efforts can be seen in past issues of the New York Times, Washington Post, Newsday, Consumer Reports, the Business Journals, Money Magazine, Glamour, Cosmopolitan, Family Circle, among others. Connect with April on Google+.