As a small business owner, you represent new ideas, innovation and momentum for contributing to community change. You belong to a cohort of leaders who remain hopeful about the future despite the challenges of the past few years.
In fact, according to a Salesforce survey, 72% of small- to medium-sized enterprises report optimism about their business growth. And Census Bureau data show that nearly all U.S. states have posted increases in business formation in the past several years.
Whether your business joined the ranks recently or you’re a seasoned operator, your financing needs will continue to change as you grow. For many business owners, a source of credit creates flexibility to adapt to rapidly changing business needs. Having credit available allows you to react quickly to new opportunities or unpredictable cash flow.
As you prepare to apply for a first-time small business loan, consider these expert tips:
•Understand your personal credit score and that of your partners. A small business loan application begins with personal credit profiles for you and any business partners. It will serve you well to have open and honest conversations about each partner’s credit history, including your own, before applying for a loan or line of credit.
•Startup businesses may need to consider other options. Before offering a loan, most banks prefer to see a few years of business history. For brand-new companies, that means financing may need to come from alternative sources until you have a long enough track record to apply for a traditional bank loan. If you are unsure, speak with your banker about your questions and concerns. Your banker should be a trusted advisor who can walk you through these decisions — and your conversation can help you prepare for future needs, as well.
•Know the seven-year rule. Under the Fair Credit Reporting Act, negative information remains on your credit history for a maximum of seven years (10 years for bankruptcy and other limited exceptions). If you have spent the past several years working to improve your credit, that will work in your favor.
•Be prepared for cash business scrutiny. Businesses that handle large amounts of cash face added burdens of proof about where their money originates. Keeping detailed, meticulous records can help demonstrate that your business follows sound accounting and reporting methods.
•Manage tax deductions judiciously. Tax deductions can help minimize the financial burden for many small business owners. It’s wise, however, to consider their impact on your reportable income. An accurate income will help a bank determine your ability to repay a loan. Your accountant can advise you on ways to balance deductions and income most appropriately to meet your business needs, now and in the future.
•Consider a business credit card. Business credit cards can give small business owners a way to manage unforeseen expenses and streamline payments. In addition, they provide a revolving line of credit — one that usually offers additional layers of fraud protection. If you are not ready or don’t yet qualify for a traditional business loan, a business credit card may offer an accessible alternative.
These small business credit tips cover some of the most common questions we hear, but our trusted advisors are available to discuss your individual business banking needs at any time. Reach out to us to speak with your local Western Alliance Bank small business specialist.