How Your Personal Credit
Affects Your Chances of Getting a B |
By John Williams |
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Your business idea first begins with a dream, and then extends to a
passion. The passion to do what you love leads you to need
financial assistance. Having the means to expand on your passion
will bring hope to your livelihood. Does your personal credit
affect your chances of getting a loan to begin the business of
your dreams? We will explore this question.
All lenders,
especially local banks, will do a thorough check of your
personal credit history. It most likely will affect your chances
of receiving or being declined for a business loan.
You
can increase your chances of receiving approval for a business
loan by paying close attention to the following personal credit
factors:
Show a steady source of income. Changing jobs
prior to or not having employment will decrease your chances.
Lenders need to see stability.
Credit card balances should
be paid off or carried at low amount. Never cancel a credit card
or apply for a new one prior to applying for a business loan.
Obtain credit reports from all credit bureaus to check for
accuracy. Almost half of the reports have been found to contain
errors.
Determine a manageable down payment amount. It may
mean rejection or approval.
Lenders want to be assured
the person they are loaning funds to is capable of managing
personal finances because it will reflect spending habits within
a business. Always be honest with lenders about your personal
credit history. Anything you cover up can be deemed as fraud and
will further you from getting the financial assistance you need.
Honesty about past financial failures with explanation is your
best investment for getting a business loan. Finally, before you
approach a lender concerning your business, financial needs need
to be organized with key documents, a business plan, financial
statements and a repayment plan.
In order to get a
business loan, a business owner must think like a bank. If he or
she is not prepared, most likely, the loan will be turned down.
Business loans are somewhat different than personal loans; in
addition to having a good credit standing, usually banks and
financial institutions require business owners to supply a well
thought out business plan. Banks want to be assured that the
business owner will repay the loan, even if the business goes
into default.
A well-thought out business plan should
include the following:
Cover letter or executive summary
Photographs of the business, if possible
A description of
you, your business and the history of the business, along with
your background regarding the business.
Any collateral or
fixed assets to be acquired with the loan and their cost
(include appraisals on real estate and recent tax appraisals).
Market or target audience, potential or existing customers;
competitors and supplier information
A good marketing plan,
which should include advertising and public relations
Financial soundness of the plan, which includes Cash Flow
Projections, projected Profit/Loss summaries, any business
credit reports, copies of any business tax returns, lease
agreements, any contracts with customers, etc.
Business
license, Franchise Agreements (if applicable), any other
construction contracts, partnership agreements, employment
agreements; environmental assessments if necessary, and copies
of any other financial paperwork of worthiness
Summary,
which lists the benefits from the loan and a brief statement
indicating how the loan will be repaid
In addition to a
well-thought out business plan, a business owner will most
likely find that most institutions require personal financial
information as well. Be prepared to present the lender with
personal financial statements, personal tax returns, an
up-to-date credit report, and resumes or letters of
recommendation from former partners or proprietors. It is the
business owners responsibility to ensure the lender that the
business is of little risk, because after all, they are in a
business for profit as well. |
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