With the current state of the economy, many lenders are wary of loans for start-up business owners.  If the lender sees a start-up business as being too much of a risk, they will not be interested in lending the prospective borrower for fear of losing their investment.  Having a high credit score is one way to increase confidence of potential lenders.

The truth of the matter is that most start-ups fail within the first five years, which is why lenders have stricter guidelines for start-up business loans.  To prove that a business is a viable investment, lenders will look at the personal credit of the prospective business owner to determine whether or not the borrower is worthy of the loan.  To ensure that a potential borrower has the best credit score possible before approaching a lender, they should always:

Pay Bills On Time
Delinquent bills are the main reason for poor credit score, which factor 35 percent of your credit score.  Credit card and installment loans should always be paid on time and above the minimum payment whenever possible.  Research automatic bill pay through an online banking service for more consistent payments, and to lower the chance of late payment.

Don’t Open New Lines of Credit
Prospective borrowers should avoid opening up new lines of credit or pulling new loans prior to seeking their business loan.  Opening these new lines of credit will negatively effect a credit score, and may will affect a borrower’s debt to income ratio, which will deter lenders from giving a start-up business a loan. Also, avoid closing a line of credit before its fully paid. This may seem like a good idea, but good credit comes from the length of time the credit is open as well as timely payments.

Keep Low Credit Balances
Credit cards are helpful for building credit, however, maintaining high balances or maxing out credit cards can negatively impact a credit score.  To maintain the best credit score possible, prospective borrowers should try to keep their credit card balances below 60 percent of their allowed limits.

Trying to obtain a start-up business loan is no easy task.  Although the odds may be against a prospective borrower, they should know that careful financial planning and a high credit score can greatly increase their chance of obtaining a business loan.