Friday, December 8, 2006

Having good credit can help you start your own business

A Small Business Administration report last month that found the introduction of credit scoring by banks for small business loans may help increase small business owners' or entrepreneurs' access to credit.

The SBA report showed that "the use of credit scoring can lead to risk-based pricing of loans which democratizes lending, meaning that riskier loans can now be made to start-ups or small business owners with little credit history," said Dr. Chad Moutray, chief economist for the Office of Advocacy with the SBA.

Still, you need to have a good credit history. Most banks in the Colorado Springs area look at a person's credit history when he/she comes to the bank for a small business loan, according to Matt Barrett, director of the Small Business Development Center at the University of Colorado at Colorado Springs.

Each bank is a little different, but someone with a credit rating of 700 and above will most likely have an easy time getting a business loan, Barrett said. Getting a loan with ratings from 700 to 680 is possible, and any person with rating below 680 would have a difficult time obtaining a small business loan.

If a business is doing well and the owner wants to take out a loan to expand, the bank will look at the books of the business and at the business owner's credit history for the past three years, according to Barrett.

2 comments:

Jeff Schneider said...

I couldn't agree more with this article. My experience in working with small businesses is that they can obtain reasonable amounts of unsecured credit with a good rating. Some owners hurt their credit rating through poor management of their credit, namely making payments late, but it can quickly be restored by simply making the minimum payments on time.
Anyone starting a business should make sure they have excellent credit before opening the doors.

CreditAsk said...

Indeed, a friend of mine had a 720 points rating. Then he determined to take a small business loan. It was really easy and fast for him.