How to Get a Business Line of Credit, Part 1: Evaluating the Deal
By Tom Gazaway
As I discussed in last week’s overview, the first step in any well-planned strategy for getting an unsecured business line of credit (UBL) involves evaluating the deal. Let me explain this.
In our program, this process is basically our responsibility once you get us all the required documentation we need. We will evaluate your business along with you and any additional credit partners or personal guarantors involved in your financing.
The primary portion of the free evaluation is a thorough and in-depth credit check. It should be done for all owners of the company as well as their spouses. This will allow you to know and understand every angle of your credit situation.
Since credit is often the primary element that will determine if you’re approved, its importance cannot be over-emphasized. The other thing you need to understand is that this process is more than simply checking a credit score. First of all, you need to know all your FICO scores, and NOT a non-FICO-based credit score.
The only way you’ll obtain all three FICO scores is to obtain a so-called “tri-merge” credit report that is normally available through mortgage brokers and banks. Since this is often difficult to obtain and because your request for your credit reports will then show up on your reports, we do not suggest a tri-merge report. We utilize a combination of myfico.com and truecredit.com. This will give you two of your three FICO scores, and truecredit will give you additional data that’s not available at myfico.
The three most common problems we see in denied unsecured business credit applications are high use of personal credit cards, too many recent inquiries, and some minor negative items such as late payments. Any of these or a combination of them can be very problematic. But they are almost always problems that can be resolved if you understand how to lower utilization and properly remove inquiries. We normally can do it without the accounts needing to be paid off.
The number-one reason why people with excellent credit are denied for UBLs is too many recent inquiries. Don’t attempt to remove inquiries if you don’t know how to do this properly. It’s also something that well over 90 percent of credit-repair agencies do not truly understand. Please DO NOT attempt to remove your inquiries through a letter-writing campaign or credit-reporting agency dispute process.
If this is done the wrong way, then it’s likely the damage will not be easily undone. So do it the right way, or don’t try it at all.
The main goals of the evaluation phase are to make sure:
- your FICO scores are sufficient
- your utilization meets the lenders’ requirements
- the evidence of previous inquiries is not too damaging
- the age of the file and number of tradelines will match up with lenders’ expectations
- the business is seasoned enough, if the lender has seasoning requirements
- the business is not considered high-risk to your prospective lenders
Knowing what you need to know about your credit and your business will also help you understand if you qualify for a traditional unsecured business line of credit, or if you can only qualify for a UBL strategy that uses a platform of business credit cards.
After a complete and thorough evaluation of the deal, you will move on to the acquisition phase. We describe this phase in the next post week’s post on acquiring capital.
Photo via Flickr user bixentro
