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Overcoming The Difficulties Of Getting Business Credit

Aug 17, 2007
A business credit profile is how companies or individuals evaluate whether or not they want to do deal with a company. Maintaining a good profile helps not only to expand the company, but also to get credit. However obtaining business credit can be difficult.

Business credit has become a daunting task for many business owners. They face hurdles before it can be obtained from a credible source. They can opt for a bank loan, but they have to meet certain conditions before banks consider their applications.

The company needs to convince creditors that the risk is worth taking. Well kept records of income tax or GAAP reports often convince lenders to grant the loan. The applicant's personal history has a significant influence on the loan being granted or rejected, since the creditor needs to know how the potential borrower handles his credit. Personal and business assets help as the creditors may look at it as collateral. A history of delinquent income, payroll, and taxes, among other things, are big deterrents to getting credit. Creditors usually look for signs indicating that the business is a viable and a profitable one. These signs include the number of years the company has been operational, if it has stable, whether there is steady cash flow, and the company's ability to repay the loan.

Credit scores play a role in getting business credit, but small business owners often have little or no credit history and little or no personal wealth. Below are some of the other factors that may cause difficulties in getting credit.

1. Being a legitimate tax paying business is a must as a tax identification number is important in order to build a good credit profile.
2. Not being incorporated causes many problems in applying.

3. Not having a business license or a tax resale license is definitely a surefire way to get turned down.

4. Not being able to provide a physical address for the company or not having a phone line or a fax makes the company suspicious in the eyes of creditors.

5. Not maintaining financial records such as income and balance sheets or tax return documents makes the company look inefficient and unprofessional.

6. The company needs at least one good relationship with a bank as a track record.

Business owners must make sure what kind of credit they need, how much can be repaid, and maintain a good credit and payment record. They also must develop a strong and feasible business plan, know what they want, and know how to reach their goal by careful planning and good financial management. In order to get business credit preparation is essential.
About the Author
David Gass is President of Business Credit Services, Inc. His company publishes a free weekly e-newsletter on Small Business Consulting at their
web site http://www.smallbusinessconsulting.com
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