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Small business owners have options when it comes to credit

Oct 23, 2013 Sean Albert

Starting a small business can be simultaneously thrilling and daunting, and the first question many new and prospective owners ask themselves is how they'll fund their ventures. There are many options out there, and knowing them can help young companies get the credit they need to turn their visions into realities.

In a column for Forbes, Ty Kiisel recently suggested that it's essential for small business owners to have an intimate understanding of personal and commercial credit reports and what they mean, as a credit score is the main criterion that many companies, including some alternative lenders, will consider before approving a loan or new line of credit.

There is a wider range of factors that determine those scores than many people just starting companies may be aware of. Kiisel noted, for example that how much of an individual's total credit available at any given time impacts their score, so that those with more will have a higher rating than those who have used nearly all of theirs. Furthermore, those without very long borrowing histories, even if they have little or no negative credit data, will have lower scores than those who have borrowed for longer. The well-versed may be aware of some of these principles, but it's imperative that owners of small companies have strong personal and business credit histories, Kiisel insisted.

Alternative lending, other resources can be an option
If options remain slim, non-bank lenders often evaluate potential borrowers on more flexible terms than major banks.

In a post for ABL Advisor, Stephen Krawchuck recently pointed out that because alternative lenders are not subject to as many regulations, they can sometimes give loans to higher-risk borrowers than banks can.

"Given their comparative cost of capital, alternative lenders will always be more expensive than traditional commercial banks, but their incremental credit, knowledge and experience often justifies the higher costs," Krawchuck wrote.

The range of options doesn't end there. Entrepreneur Magazine noted that small businesses and startups who have difficulty attracting the attention of venture capitalists can opt for business credit cards, which offer a revolving line of credit, at least for smaller expenses. The news source reported that it is possible for business owners to personally guarantee a loan with collateral - a car, home or other asset.