Helping our Clients Improve their Credit Score
The approval requirements for getting a bank loan are similar to a three-legged stool: credit score, collateral and cash flow. If one of those legs is weak, it’s harder to get a loan. Yet, the most important leg is the credit score. A good credit score goes a long way toward getting approved for a bank loan.
Most banks will be looking for a FICO score of at least 680, but the higher, the better. If your clients’ scores aren’t this high, the most simple step they can take to improve their score is getting a copy of their credit report and carefully reviewing it for errors. Note that four out of five credit reports contain errors, but errors can be disputed for free. If a dispute is resolved in the business owner’s favour, it can increase the credit score in 30 days or less.
Other ways to improve credit include paying all bills on time and paying down high rate debt, such as credit card and student loan debt.
Educating our Clients about Business Credit
While most people are familiar with their personal credit score, many of the small business clients may not know their business also has a score. Business credit bureaus, such as D&B, Experian and Equifax, collect trade data and loan data to evaluate how likely a business is to pay its bills. A bank will most likely check a business’ commercial credit score before approving it for a loan.
It’s easy to start building business credit. Some steps client can take include getting a free DUNS number to establish a credit file, opening a business bank account, and getting and responsibly using a business credit card. If they’re not in the habit of doing so already, clients should also pay all their suppliers and lenders on time to maintain good business credit.
Helping our Clients Create a Good Business Plan
Banks want to know as much about a business’ future plans as it can before it trusts the business with its money. clients should take the time to think about, and put down on paper, the business’ future goals, marketing and customer acquisition strategies, as well as financial projections for the next 3-5 years. While this is especially important for start-ups, what a lot of people don’t know is that a business plan is just as important for an established business seeking a bank loan. As the accountant, we can help our client gather historical financial data, estimate future income and profits, and present the business in a positive light.
Helping our Clients Gather the Right Paperwork
One of the downsides of applying for a bank loan is that it is paperwork intensive. The bank will ask for numerous documents, including the following:
- Organizational documents (incorporation papers, organizational chart, for example)
- Last 3 years of business and personal tax returns
- Last 3 years of income statements, and profit and loss statements
- Recent business bank statements
- Recent merchant processing statements (if applicable)
- Collateral statements
- Business plan