I never intended to borrow money for my business. So far I’ve been able to manage through the odd cash-flow crisis by dipping into savings. But an opportunity has come along that I just can’t ignore. To ‘go for it’ I’m going to need to invest in new equipment and to do that I’m probably going to need to borrow. It’s scary. I’m not at all comfortable with debt. But this is too good an opportunity to miss, so I’m preparing to take the leap.
First though, the question is, would anyone lend to my business in anycase? Is the business credit-worthy?
Fortunately I faced the facts about business credit some time ago and I have made sure that the business is in the best shape it can be to qualify for credit. Even if you have no intention of borrowing, things can change quickly when you run a business. To be able to survive a downturn or grow when opportunities arise you need to think long-term and make sure that your business is in credit-worthy shape as soon as you can. Here is what you can do to improve your prospects:
Separate your business from yourself
If you want credit or investment to help your business to grow then the business needs to have a separate identity to you. Many lenders will not provide credit to ‘sole traders’, in that case they will only support you as an individual. To qualify for credit in its own right your business will need to be a separate legal entity, like a limited company. Even then, be aware that many lenders will try to secure personal guarantees for loans or investment. Don’t automatically agree to this, aim to negotiate or shop around for a better deal if you can.
Prove you are trust-worthy
In the old days, banks would assess your character based on their local knowledge of you and your family. Nowadays character assessments are still important but they are based on computerised reports including credit ratings. Make sure that the credit ratings of your business and all the directors of the business reflect your trust-worthiness. Never miss a repayment on a loan, credit card or lease. If you’ve made some credit mistakes in the past, you can learn how to improve your credit rating here.
Keep on top of your cashflow
Do all you can to keep your business cashflow positive. Know your industry and customers inside-out so that you’re in a better position to predict changes in demand. Manage invoices tightly and don’t let late payments get out of hand. If you have any customers that really are more trouble than they’re worth, think about getting rid of them. It will free you up to focus on more profitable customers and opportunities.
Small oversights in the way you present your business can raise unnecessary suspicions. Make sure that you have all the necessary business information on your website and materials, including business address and company number. And make sure that your business information and image is consistent across all your materials and online platforms.
Skin in the game
‘Skin in the game’ sounds like a painful injury, but relax it’s just a weird new jargon term that investors, like business angels, like to use. What it means is that they want to see that you have also invested any funds that you have in the business. From their point of view, your investment isn’t just about sharing the financial risk, it’s also a clear sign that you fully believe in the project and have risked enough to go the extra mile when the business needs it.
Personally I’d still really like to manage this business expansion without having to take a loan or investment. But if I really need it, I’m certain I’m doing all I can to be in good shape for credit. Can you say the same? If not, don’t delay, work through these points and start building those money muscles today.
Image: Business growth via shutterstock
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