Small Business Basics: What Lenders Look For When Lending to Small Businesses

Over the years, I have had many clients and prospects ask me about Dun & Bradstreet Business Credit Reports.  They think they should subscribe to this service in order to secure a business loan. While I am sure there are uses for this report, I honestly have to say that I have never obtained a business credit report in my 11+ years as a Business Banker.

The Myth

The Dun & Bradstreet reports are business credit files that are established by vendors and lenders who report on a business’ payment behaviors, most specifically vendor invoices and keeping payments up to date.

While there are certain industries who tend to use a large number of vendors for their daily work, such as construction and manufacturing, most small businesses use a very small number of vendors.  They may also use vendors who do not report.

While there is a place for Dun & Bradstreet, many lenders don’t rely on business credit scores to determine if a small business owner qualifies for a small business loan.

What Really Matters

One of the most important things to work on is your personal credit.  Since YOU are the business, lenders are typically going to look to you personally to guarantee the loan.  The other things that lenders consider are: 

  • Capital – How much money do you have to invest?
  • Collateral – What assets are you able to bring to the table?
  • Capacity – Are you able to afford the payments?
So, instead of trying to build your business credit, take the time to clean up your personal credit. Take the time to monitor, evaluate, and protect your personal credit just like it’s a business asset. More and more lenders ask you to personally guarantee your business loan, especially when a business has no borrowing history. So for small business owners, personal credit often becomes more important than business credit in the long run.

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