No lender in the United Kingdom is obliged to offer credit to small and medium-sized businesses, but there is a glint of hope that loan services will treat SMEs better these days.
The big banking institutions that have been inclined to scupper applications more often than not during the downturn in the economy set a record for lending to small businesses in June.
The Bank of England says that lending to smaller firms rose by 238 million pounds in June, compared with the average monthly fall of 500 million pounds over the previous six months. That’s the largest increase since the bank started tracking records in April 2011.
It’s still far short of the boost the Bank of England hoped would occur when it rolled out its Funding for Lending Scheme a year ago, but after being left in the dark by lenders for so long, SMEs welcome any access to cheap credit.
The issue now becomes how to build a credit history that gives your SME an opportunity to take advantage of available funds. The steps are not terribly dissimilar from those a business owner would take to build his own personal credit history.
- Get a company credit card and pay your monthly bills on time. No single step is more essential to building a good credit history than paying on time. Lenders embrace companies that are current with their bills. If you can show a 12- to 24-month history of paying bills on time, they will wrap their arms around you when you walk in their office.
- Know your limits. If the company credit card says you have a £1,000 limit, don’t go over that, even if you know you have the money to cover it. In fact, spend about half the limit every month and pay it off. That will improve your credit score.
- Get multiple cards. If you aren’t satisfied with the credit limits on one card, sign up for another, but only if you intend to respect the limits and pay it off at the end of every month. The ability to pay on time for two cards does wonders for your credit score.
- Check your company’s credit report. You might even want to make this your first step. You should know the history of how your company pays its bills. Giving it the once-over lets you find out whether mistakes have been made that can be corrected. Experian, Equifax, Creditsafe and Dun & Bradstreet can provide reports.
- Suppliers can help your credit. Ask suppliers to give you credit accounts payable within 30 days. This allows you to demonstrate the ability to manage credit honourably and gives your suppliers a chance to help you improve your credit history.
- Age helps. If you’ve had a company credit card for some time and paid it off dutifully every month, keep it. Even if you find a different card that has better features, keep the old account open and use it occasionally. Lenders like signs of stability in anything.
- Joint separation. If you have a joint banking account or co-signed a loan with family or friends, your credit history is connected and you may not want that. If your partner overdraws an account or stops paying a loan, you suffer, so separate yourself completely. Don’t make your business suffer because you were just trying to help someone out.
While the tips above may assist you in getting started on a credit history, or pushing your meager history a bit farther down the road, the simple fact is this: The only hope for establishing a credit history is to use credit.
If you don’t have a company credit card, get one. If you can find a lender who will make you a loan of any size, take it and repay it. If the vendors you deal with will allow you to open business accounts with them, do it and pay them promptly.
Use whatever means of credit available to establish your value as a creditworthy business.
Bill Fay is a writer for Debt.org, focused mainly on news stories about the spending habits of families and government. He spent 21 years in the newspaper business and eight more in television and radio, dealing with college and professional sports, then seven forgettable years writing speeches and marketing materials for a government agency.