Owning and operating a small business can be fulfilling and exhilarating. But it can be challenging as well. The four most common reasons that small businesses fail are: first, a lack of funding or working capital. Second, inadequate management. Third, ineffective business planning. And fourth, marketing mishaps. To achieve funding, 40% of U.S. small businesses applied for financing in 2022. It stands to reason that applying for business financing is a critical skill for small businesses’ survival and success. 

Why Business Owners Apply for Financing 

Applying for business financing is critical for business owners because funds are generally needed beyond normal revenue generation to provide working capital for continuing business operations, making asset purchases, debt restructuring, hiring staff, business expansion, and growth funding.

The Importance of a Good Business Score 

A business credit score is a measure of how solid and trustworthy a business is in terms of business and financial management, and how well it will be able to repay a loan before approving a loan. Credit scores are used by loan issuers, vendors, and credit agencies. 

A good business credit score is highly valuable because it can help a business secure loans at better terms and eliminate the need for personal guarantees. A good business credit score can also help a business receive lower insurance rates and it can help achieve more favorable terms with vendors. 

Does Applying for Business Financing Impact Your Credit Score 

The answer is both yes and no, depending on the type of lender financing. Most online lenders conduct what is referred to as a “soft credit check” using an online application, and that does not impact your credit score. A “hard credit check” is a thorough credit check conducted by most traditional financial institutions and it does impact your credit score, but usually by only a few points. 

The primary factors that impact a business’s credit score are the number of years the business has been operating, the number of lines of business credit applied for during the prior nine months, the number of new lines of business credit that have been opened and the number of those used in the prior six months. It will include the age of your credit and the business credit utilization rate. That is the ratio of the total amount you owe versus your authorized credit limits. It will include any business collections or tax liens in the last seven years, and a review of your payment history demonstrating the frequency of payments and any late payments. Other loan approval factors include how much capital a business owner has invested in the business, collateral, and company operating conditions.

Steps for Applying for Business Financing  

Use these steps for applying for business financing: 

  1. Clearly define the type and amount of business loan that you need. 
  2. Research different lenders and compare their offerings. 
  3. Understand each lender’s qualifying factors and find out if you qualify for funding. 
  4. Gather the documents that are needed and use them to apply for funding. Those documents will include financial statements, bank statements, and tax returns. 

The requirements used by lenders will vary by lender, but the primary requirement is some evidence that you can pay back the loan. That will require proof of business income and your bank statements showing the amount and frequency of deposits. Time in business is also a critical measure of creditworthiness. It is much easier to apply for financing after you have been in business for at least six months.  

Get Expert Alternative Financing Assistance 

Contact Multiple Financial Solutions for your business financing needs. We offer a portfolio of alternative funding solutions for companies that can’t get funding from banks including business lines of credit, merchant cash advances, and commercial real estate funding. We focus on businesses that have been active for 2+ years and are looking to grow to the next level. If you are facing funding challenges, we are ready to help you.