Important things to know about how Businesses Obtain Credit
Many small businesses will apply for credit (also known as a loan), but less than half are able to get the full amount they requested. It’s important to understand how credit works and how lenders assess small business credit applications to be better prepared for when you apply.
When a business enters into an agreement to borrow money via a loan, the business is using credit. Credit may be sought for many reasons, but for small businesses, this is commonly for things like: assisting with start-up costs, purchasing equipment or inventory, covering cash flow deficits, or building credit history.
Much like when applying for a personal loan, lenders will look at the small business applicant’s creditworthiness when deciding on whether to approve a loan application. During the process, you will likely be asked to supply things like your business plan, financial statements, revenue, and sales figures, etc.
Using the free *Native American Financial Services Association (NAFSA) Financial Literacy Program, you can explore online playlists with many modules that relate to overall financial competency, whether this is better understanding mobile and online banking or how to use a prepaid card, our curated playlists will provide you with important information.
How Businesses Obtain Credit:
One main component relating to credit is your personal credit score. For a small business loan, the lender will likely look at both your personal credit score and your business’ credit score. Your business credit score is a value between 0 and 922 and is calculated by companies like Dun and Bradstreet, Experian, and Equifax.
Credit can come from a traditional small business loan via a bank or credit union, but alternative lenders are becoming more common for small business owners. It’s important to understand the different sources and compare the various pros and cons of each, depending on your business’ unique circumstances to figure out what is best for you.
The How Businesses Obtain Credit module, located in the Small Business Essentials playlist, provides much more information for small business owners regarding where to get credit, what to look at when comparing sources of credit, understanding interest rates for small business loans, and a way to best determine how much you can borrow. This module also includes information for those having a difficult time obtaining credit, which can often be a hurdle for new small business owners. Obtaining credit can be a gamechanger for an emerging or growing small business; use this module to walk through the steps to better understand the process and be strategic for your small business needs.
The NAFSA Financial Literacy Program provides a variety of modules and tools with easy-to-understand information to help people better comprehend their finances and make more informed decisions.
Explore the program today: https://nafsa.everfi-next.net/welcome/nafsa-achieve
*The NAFSA Financial Literacy Program content contained on the NAFSA web page(s) referenced above, and on any subsequent pages created by our service providers/partners, provides general consumer information. It is not legal advice or regulatory guidance. There may be other resources that also serve your needs and you are always encouraged to, and should, consult with your own professional advisors prior to making any financial decisions.
