Does Credit Score Matter When it Comes to Funding?

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Are you an entrepreneur starting a small business? Are you worried that your credit is too low to be approved for funding? Don’t worry, there are people out there just like you and there are so many ways to get funding. How important is having a high credit score and are there other factors to getting a loan that may be more important?

Let’s talk credit

Credit can be a sore subject for people, but sometimes it needs to be talked about. Your credit score is made up of many different factors. These factors include how much debt you have, credit mix, length of credit history, payment history, and recent credit. Credit fluctuates over time. For example, your credit will fluctuate as you pay off debts and get new ones. It is normal for your spending to increase and decrease, however, it is always important to make payments on time. On time payments is one of the most important factors that show you are credible when borrowing money.

You Don’t Have Credit

For those of you that do not have credit, your credit score will be very low. No credit is almost as bad as having bad credit. You just haven’t had the chance to prove that you’re reliable yet. If you don’t have credit, you most likely do not have debt, which can be a good thing! It’s possible that you have a large savings account and you just have never asked to borrow money before.

What Are Lenders Looking At?

Some important factors that lenders are going to want to look at in addition to your credit would be your business plan, what you can offer for collateral, your time in business and your cash flow.

Do you have a solid business plan? If your answer is yes, then that’s great! If the answer is no, then you should step up your game and get help making the perfect business plan that will impress the lenders! Business plans can be difficult to perfect, especially for someone who is “green” to the world of business. Business plans do a few things for lenders, such as, show your company’s profile, why you want to start a business, market research results, who you are targeting, your company’s future projections, and your overall strategy to succeed. A business plan that looks promising and is done right will “wow” the lenders.

Another area that lenders are going to look at would be collateral. What do you have that they can put a lien on until you repay the loan? Maybe you own a nice car or you own a house that can be offered as collateral. The more collateral you are willing to provide, the more likely lenders might be to approve you.

Time you have been in business is another important factor. Are you looking for startup funding or have you been in business for a few years already? For a startup business loan, you are more than likely going to need excellent personal credit. If you are a small business looking for additional funding with 2 or more years of experience, you certainly will be more likely to get approved. If your company has a large annual revenue and high projections for the coming years, then you are going to appear as a good investment to the lenders.

Cash Flow is going to be taken into consideration as well. Do you have a ton of cash on hand? Well, that could mean that you are not properly investing in your business. If you have no cash flow, then you could possibly be spending too much. Having the right amount of cash flow and working capital is important to show lenders that you are in a healthy financial situation.

Are You a Big Risk?

Many small businesses fail because they are entering an industry where there is no market need. Some people may say that you could sell ice to an eskimo, but to be profitable, you are going to have to sell ice to a lot of eskimos! If you are trying to sell something that people just don’t need or want then you may want to rethink your business idea. Some booming industries that you could look into would be media, real estate, construction, hospitality and consumer retail. Some industries you may want to avoid would be print media, grocery stores, and even jewelry stores. When you are writing the business plan be sure to do your research before deciding whether your business idea has a market need.

Does Credit Matter

So, there is no flat answer to whether credit score matters when it comes to funding. It honestly depends on everyone’s individual situation. For example, someone has a low credit score, but they excel in all other funding requirements, then lenders may look past the credit and approve your application. However, if you do not have collateral, cash flow, no business experience, and you are entering a weakening industry, it is very unlikely that you would get approved with a low credit score. Having a nice balance of the funding criteria is going to be your best bet. For those of you looking for startup or small business loans or funding and business loan agency will assess your personal situation and set you up with the funding that is right for you.