A L Bean & Company

June 3, 2011

The Business Credit Dilemma

Filed under: Accounting,Consulting,General — Tags: ,
Business Plans
, — artlbean @ 7:29 pm

Banks are still holding tight to their purses, and many small business owners are feeling the pain. At issue is the fact that many banks have increased their credit standards. While a 650 credit score was fine before the economic downturn, a score well over 700 is best now.

According to Experian, the average VantageScore (a tri-bureau credit scoring model that has a range from 501 to 990) is 736. If you have a 500+ credit score, as many consumers do, it may be difficult to get a business loan.

The Myth
I have talked to several business owners who do not realize that personal credit is what many banks use to make a business lending decision, especially with loans under $500,000. In fact, many banks will look at your ability to repay the loan based on your personal income, when loans are in the several thousand dollar range. It may not sound fair, but that’s the way it works. Keep your personal house in order and your business house in order if you need a bank loan.

Business owners that need financing of $1 million or more should certainly manage their credit score, though your company’s financials begin to hold a great deal of weight as well.

When business financials come into play, make sure you have an accountant develop your financial statements. Banks need to feel comfortable with your numbers, and numbers that that don’t make sense will certainly impact your chances of getting a loan.

Please contact A. L. Bean & Company for your accounting / bookkeeping needs.

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