First of all, you’re not alone. Findings suggest that one in five applications for finance from the bank from small businesses were unsuccessful in the last quarter(1). Whether you’re a start-up or a well-established organisation, it can be like jumping hurdles at times when trying to secure that all important finance(2). What do you do now?
Step one is to look at why you were refused. Overall, it’s likely because you were deemed to be a high risk due to a number of different factors identified on your credit report(3). You might be thinking well why is this, I always pay people back on time, I’m a reliable individual and I’m proud of the reputation my business has amongst peers. In fact, that is simply the tip of the iceberg.
If we move underneath the water, your credit history alongside your trading figures(4) form the barometer that is utilised by banks to make an informed decision whether to lend to you or not. You need cold, hard figures, a track record so to speak, that clearly shows, on paper; this company has proved time and time again that they can service their debts and we want to lend to them.
It’s important to note at this stage that ultimately, this is not rocket science. It is largely dependent on a simple algorithm that assesses data that has been collected on your business that will offer a score-based rating, this then feeds through to form the decisions(5); yes or no, and if yes, how much?
Now, as with any ratings, they can change over time.
Here, we offer some key points of advice on how to boost your credit rating:
- Forge relationships with lenders: Start fostering relationships with key lenders out there. Do your research, get in touch and try to identify favourable rates that work for you. You might not be looking for your end goal here of securing that substantial loan needed for growth, but finding a starting point is the key to building up that all-important credit history
- Grow your credit rating and make use of it: You might have secured a small loan or a product/ service on finance, alternatively you may have a credit card. Use it, use them. Show the banks that, hey, I am borrowing money over here and I am paying it back. It might only be small amounts at first but like with securing a personal mortgage, start small and with time you’ll see the amounts you can borrow grow over time as your profile increases
- Monitor and mind your credit rating: You know what you need to do, but how can you really take control for yourself and monitor how your activities over time are actually making a difference? By accessing your business credit report through a Credit Reference Agency (CRA) like Experian, you’re able to see what factors are having a positive or negative impact on your score, and you can monitor changes over time as you make improvements to your profile. It’s important to ensure that you’re viewing a report that is specifically designed for the owners of the business – like Experian My Business Profile – so you aren’t leaving a footprint every time you check your report, which in turn could be damaging to your score. To take control of your Business Credit Report and see how lenders view your business; click here.