Big Changes in the Business Loan Approval Process

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Follow Up on Credit Reports

With a little planning, it is possible to improve your chances of getting a loan and reduce your borrowing costs.

Start by pulling your personal and business credit report with the major agencies three to six months before you anticipate applying for a loan. Consumer credit reports are available through Experian (EXPGF), Equifax (EFX), and TransUnion. Experian and Dun & Bradstreet (DNB) publish business reports. Review these reports for errors; if you find mistakes, follow up directly with the reporting agency.

Then encourage trade partners—from credit-card companies to suppliers—to report positive payment activity. Much of the coverage provided by the major business credit reporting agencies relies on voluntary feedback from creditors.

John Ulzheimer, president of consumer education at Credit.com, also suggests paying close attention to three avoidable credit missteps that can sabotage your loan application:

1. Missed payments. Even one late or missed payment can affect your score and your borrowing cost. Be especially prompt with the payment of core bills, including mortgage, car payments, student loans, and child support payments.

2. High credit utilization. Ideally, banks want you to be drawing only a small portion of the credit available to you. If you are regularly drawing 50 percent or more of available credit, apply for new cards. Bear in mind that a bank may start to penalize you if you have dozens of cards with high limits that you never use, especially if these cards once utilized could overload you with an unmanageable level of debt.

3. High debt to income. Lenders will want to see this ratio well below 50 percent when factoring in housing expense.

Finally, be realistic about the amount of credit you seek. Your financial projections should include debt service payments, and your personal tax returns should validate that you have the resources to guarantee payments personally if things go awry.

Monica Mehta is managing principal of New York-based investment firm Seventh Capital.

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