Well, I can tell you this. Acquiring money is certainly tighter than it was even 3 months ago. We all know that banks have always been conservative in the practice of lending capital because the money they are lending belongs to their depositors. However, in speaking with the various banks lately, we have determined that their lending requirements have tightened up even more. In fact they are changing on a daily basis making it very difficult for even the best of us to get capital.
What does that mean for you the business owner? It means you need to make sure that both you and your business have pristine credit. For a good FICO score, the minimum use to be 680. The banks will accept that score but somewhere along the way it has increased. The banks now want a customer to have a 720 and higher for a personal credit score and at least an 80 or higher for your business credit score. The better credit profiles you have for yourself and your business the greater the odds for you to obtain that line, loan or business credit card that you’re requesting.
In the past you could borrow money for a business and the credit would be extended to the LLC or the Corporation. You did not have to personally guarantee it, meaning that if something went wrong during the life of the entity and the business was unable to pay for the debts to any of the creditors and declared bankruptcy you were not held personally liable for those debts. They could not come after you for the payment. Unfortunately that is not the case any longer. Too many banks lost incredible amounts of money due to corporation bankruptcy’s.
The recent home mortgage fiasco once again caused the banks to further tighten up an already tight market, requiring personal guarantees for even lesser amounts of money. That is the reason it is more difficult today for some individuals to borrow money that had no problem even 6 months ago.
The banks are not willing to lend you funds if they feel you have the tiniest amount of risk attached. So they look at all of your outstanding debts; car payments, credit cards, mortgage payments, home improvements etc; now add to the mix any debt that you acquired on behalf of your business that you had to personally guarantee, and your debt to income ratio is over what is considered an acceptable level to receive any type of lending.
There is something that you can do to increase those odds. It’s called Commercial Credit. If you are a new start-up or ongoing business you need to separate your personal credit from the business, unfortunately this cannot be done by oneself. By separating your credit you appear to be less of a risk to lenders, vendors and other companies wanting to do business with you. It shows that you have made a commitment for the long haul, that you take your business seriously, not as a hobby or on a part-time basis, which will then open the doors to financial opportunities that would not be available without business credit.