Business Finance Tips

For new and established businesses alike, the intricacies of business finance can be overwhelming and intimidating. Obtaining vendor lines of credit, bank loans, and corporate credit cards can be challenging; by understanding the way in which lending institutions and vendors determine creditworthiness, business owners can better position their companies for preferable interest rates and access to additional funding for expansion and growth. There are essentially five criteria that most lenders use to determine eligibility for credit; by ensuring that your company measures up to these standards you can improve your corporate credit scores and enhance your overall financial rating.

Proper Ratio
Typically, lenders look for a 1:3:5 ratio when assessing creditworthiness; this means one traditional bank loan, three corporate credit card accounts, and five vendor lines of credit. By keeping your business finance arrangements in roughly this ratio, you can improve your company’s chances of obtaining the financing it needs.

Stability
Lenders will examine your business credit history in order to determine whether your business seems viable and financially secure. Most lending institutions consider that your business was established on the day you opened your first corporate checking account, not the day your company was incorporated or founded. For this reason, it’s crucial to open a corporate checking account as soon as possible to get your company’s credit history on track.

Obtaining credit to get credit
It seems paradoxical, but you need to have established credit in order to obtain further financing. Getting the first few credit lines and vendor lines of credit is the most difficult; many companies overcome this obstacle by obtaining non-traditional loans that report to the credit agencies or by accepting secured credit lines rather than unsecured loans, which typically are much more difficult to obtain without an extensive credit history. Vendor credit lines are often easier to get than bank loans or corporate credit cards since the vendor benefits directly from your company’s patronage.

Compliance
Most major lenders have a carefully-guarded checklist of criteria against which they measure companies to determine creditworthiness. Typically, these checklists include items like a valid business address, complete separation between business and personal accounts, verifiable corporate phone numbers, and proper incorporation status in the state of record.

By ensuring that your company is prepared for the high-stakes world of business finance, you can improve its chances of surviving and thriving in good economic times and bad. This will ensure that your business gets the funding it needs to expand and continue operations for many years to come. Consider debt consolidation loans to improve your current cash flow. Consolidating debts can place your business in a better position.