Online Business Loan Can Keep Your Credit in Check
For businesses in the early stages of growth, the need for a quick infusion of cash invariably arises – whether it’s due to late invoice payments, unexpected operating expenses, or a seasonal lull. Until your business has built up a cash reserve, it is important to have cash flow source to rely on for a quick capital infusion. That’s where an online business lender can help. They are more accessible to short term business loans that otherwise could not qualify for a traditional bank loan. Depending on your personal credit score, the terms can be fairly reasonable and the approval and funding process is very quick. Equally important, if you are still working on building your own personal credit as well as your business’ credit, an online business loan can help you with both.
Using Online Loans to Build Credit
At some point, you may need to work with a traditional bank to obtain financing for your business. However, to qualify for a business loan, your business will need its own established credit history. Depending on the type of financing, the bank may require you to personally guarantee the loan, which it will only do if you have a solid personal credit history. As a small business owner, you are striving to build credit for yourself as well as your business so you can eventually qualify for any business financing option that fits your needs and preferences. With that in mind, utilizing an online business loan for your next borrowing need may be your strategy.
With some online business loans, the business owner applies using his or her own credit score to determine the rate of interest to be charged. Scores above 600 earn the better rates, between 10% and 25%. However, the annual percentage rate can be as high as 100% for scores below 500. The terms of the loan – amount and length – are based on the amount of revenue the business generates and how long it has been operating.
Other options, including alternative platform lenders, use a variety of information about your business including cash flow and years in operation to determine whether you’re creditworthy. Most lenders require at least $50,000 of annual revenue and one-year of operation. It would be important to settle on a loan amount that can easily be repaid over time from profits so as to prevent a future cash crunch. However, once you’ve obtained a business loan online the lender will report payments to credit bureaus – helping to improve your credit over time.
Personal Before Business
It is important to check with the lender to confirm that it does report payments to the credit bureaus. Many online lenders do report payments. This is important because you will be building your personal credit history. Your credit score improves over time as payments are made in a timely manner. Of course, it is important to keep all of your other personal credit payments current.
In the meantime, you can work on building a business credit history. You will need a federal tax identification number, which can be obtained on the IRS website. That enables you to register with the business credit reporting agencies, such as Dunn & Bradstreet and Experian among others. If you can arrange to pay vendors over time, they can issue trade credits that are reported to the bureaus. It is sometimes easy to obtain a credit card in your business’ name from a gas company or a retail office supply store. Paying for business expenses from a separate business checking account is also important.
It will take some time, up to a couple of years, to create an established business credit history, but, when combined with a solid personal credit history, your chances of obtaining bank financing increase. In the meantime, you will still have access to your online lender for your borrowing needs.