As of July 2020, there were 30.2 million small businesses in the United States, each with its own origin story. Whether the owners applied for a loan or cashed out their savings accounts, small-business owners have always had to assess their finances before taking a leap into entrepreneurship. If you’ve been asking yourself how you can start your own business with no money, you may benefit from taking out an SBA loan specifically designed for small businesses. You may also benefit from an SBA loan if you are in the midst of restructuring your business.
Either way, you’re probably wondering what credit score you need to qualify for an SBA loan. After all, securing a loan is nearly impossible without good credit: Loan rejection rates are around 73 percent, with bad credit being a leading factor.
Whether you are in the beginning stages of starting a business or have been running one for years, here are five financial strategy tips any business owner can use to achieve the best credit score possible and secure an SBA loan.
1. Know the Credit Score You’re Aiming For
Before you learn how to increase your credit to be approved for an SBA loan, you should know where you’re headed. Most lenders require a minimum credit score of 600–680 for an SBA loan. Remember, that’s a minimum requirement for business loans from most lenders, so anything above that will be icing on the cake.
Knowing how much capital you’ll need is also paramount, because the amount of money you will be able to borrow will be directly related to how much a lender decides you can afford.
2. Use Business Credit Cards Wisely
If your personal or business credit scores need some improvement, take action now to beef them up. Consider opening up some business credit cards, using them and paying the balances every month to build a solid credit history. Most credit card companies give an option of automatic payment, ensuring that you never miss a due date. It’s also worthwhile to look intomicropayments, which are small, frequent payments made throughout the month to keep your credit balance low and your credit score climbing.
3. Analyze Credit Reports
Since business credit is crucial to securing funding for your business, you’ll want to watch it closely. By regularly checking your business credit report, you will be alerted to any malicious activity that could lower your score and have a negative effect on your business. From outstanding balances to identity theft, business credit reports contain all the red flags you should know about so you can take swift action to fix them. If that sounds like a lot of work, look into business credit monitoring services, which can do most of the heavy lifting for you.
4. Consolidate Debt
One way to improve your credit score before applying for an SBA loan is to consolidate accumulated debt. If you have a lot of debt from multiple sources, it might be best to consolidate them into one payment. Not only can this lead to a lower interest rate on your loan, but it might also help you in paying down your debt, which will boost your credit score faster.
5. Sign up with ScoreMaster
With a gamified dashboard that displays potential score increases and decreases based on spending and debt repayment, ScoreMaster is designed to help small-business owners achieve their best credit score in just 20 days or less. ScoreMaster also helps potential borrowers monitor their spending habits and debt accrual, which affect their credit score significantly. Even more, ScoreMaster offers an open collaboration feature, which binds borrowers and lenders to a plan for better-quality loans based on your goal credit score. This feature allows small-business owners to share their ScoreMaster plans with lenders in real time, which keeps them on track for the best possible deals related to their best possible score.
Learn more about how ScoreMaster can help you make your ultimate entrepreneurship dreams a reality.
*Legal Disclaimer – ScoreMaster is a patent-pending educational feature simulating credit utilization’s effect on credit scores via payments or spending. Your results may vary and are not guaranteed.