Learn what information to gather and review before starting your small business credit application.

Whether your business is just starting up or preparing for expansion, credit can help support your short- and long-term financial goals. You’ll find that there are a number of benefits to establishing and building small business credit. However, before you apply, it’s important to determine whether your business is ready for credit.

Follow these steps to ensure your business is fully prepared to obtain financing:

Review your credit history

When assessing creditworthiness, both your personal and business finances matter. On the business side, a bank will determine if your business is generating a positive cash flow. On the personal side, a bank will want to know if you are earning enough income to support not only your current debt, but also the debt that you’re requesting.

Before you approach a lender, request a copy of your personal credit report from the three consumer credit reporting agencies (Experian, Equifax, and TransUnion) and your small business credit report from Dunn & Bradstreet. Review your reports carefully for accuracy. If you spot an error, file an online dispute with the applicable agency as soon as possible (within 30 days of receiving your report).

Gather financial documents

Before filling out your application, locate this information and double-check it for accuracy:

  • Business revenue reports
  • Personal income reports
  • Tax returns for the past three years
  • Asset and bank account information
  • Proof of ownership
  • The full legal name of your business

Providing comprehensive and accurate information can help your application move through the process as quickly as possible.

Determine how much capital you need

Be prepared to tell the lender how you plan to use the money. For example, you may explain that you will use the capital to pay for additional office space and furniture or for a website redesign.

Also be sure you are asking for a realistic amount to fulfill those particular goals. The cost of materials has gone up quickly in recent years, so a remodeling project this year may be considerably costlier than the quote you got two years ago. If you’re not sure how much capital to request, consider seeking bids from several companies before filling out your loan application. This information may help avoid funding shortfalls that can sidetrack your business plans and will give a prospective lender a clear, accurate picture of your borrowing needs.

Understand all your lending options

It’s important to identify all the lending options available to you and determine which one is the best choice for your business. You will also want to consider the process and the timing. For example, loan decisions below $100,000 may be based on your credit profile and basic information, while larger amounts may require a detailed review of your finances. Some things to keep in mind:

  • Credit cards may be used for everyday business purchases, including office supplies, meals, and travel.
  • Lines of credit can help with working capital needs (such as paying for inventory) and maintaining cash flow.
  • Term loans are designed for making specific purchases, such as equipment, vehicles, real estate, or renovations.

If you’re unsure which credit product is right for your business, make an appointment to discuss your credit needs in detail with a banker before you apply.

Consider terms and interest rates

You also have to decide how long you will need to repay your credit. There are short-, medium-, and long-term loans, and they all have positives and negatives. For example, if you expect to be able to pay back the money quickly, a short-term loan may be the best choice. Interest rates can also have a big impact on your decision. For example, loans with fixed interest rates may make it easier for you to budget, as you’ll likely have fixed monthly payments.

Bottom line: Just as planning and preparation can help you set business goals that will help you succeed, planning and preparation can help you apply for and secure the funds needed to reach them. Your banker, accountant, or financial advisor can explain the various trade-offs of loans and credit products — and how their rates and terms can impact you now and in the future.