June 2019

What Matters Most: 5 Things Lenders Consider in Business Credit Applications

4 minute read

Understanding the five things lenders consider when they make business credit decisions can help business owners prepare a stronger credit application.

When you're applying for business financing, it pays to be prepared. Understanding what a lender looks for when assessing risk and making business finance decisions can help you put together a stronger application. This might help boost your chances of approval and possibly even help your business receive better borrowing terms.

If you're in the market for new business credit, pay attention to these five things lenders consider when they review business credit applications.

1. The type of business credit for which you are applying

Businesses apply for a wide range of business credit, and lenders use slightly different criteria for each. For example, lenders underwriting secured bank loan applications (including mortgage loans) pay special attention to the security or collateral for the loan, such as machinery, equipment or real estate.

If you've submitted an invoice factoring application, lenders will review your accounts receivables. For unsecured credit lines, they'll take a close look at your monthly cash flow.

2. Credit scores

Depending on how long you've been in business, your personal and/or business credit scores can impact your business credit applications. To assess the credit risk of a new business (which doesn't yet have any credit history), lenders often depend on the personal credit history of the owner. Once a business is established, lenders consider the business credit record from the business credit bureau. They can also review any available supplier and public credit records.

3. Personal debt

In addition to reviewing a business owner's personal credit score, business lenders might also take a look at your personal credit history and current debt. They do this to use your personal money management as a guide to anticipate how you'll manage business credit.

They'll consider your non-sufficient funds (NSF) history and personal cash flow in terms of covering debt payments such as loan and mortgage payments. They could also review how you manage revolving credit—your personal credit line and credit cards.

4. Business plan/projections

Your documented experience, market awareness, anticipation of business threats and forecasted growth all play a part in a lender's decision to approve a business credit application. Expect your lender to look closely at your experience in this market, as well as your marketing and sales strategies and projections. A well-written business plan and financial projections can help show lenders you're serious about your business' success.

5. Company financial statements/tax returns

When reviewing credit applications for more established businesses, lenders will often ask to review recent bank statements and tax returns/Notices of Assessments. They may also ask for legal documents and financial statements, including any articles of incorporation, your most recent balance sheet that lists your business assets and liabilities, your income/profit and loss statement and your cash flow statement or banking records.

A valuable alternative

Many companies look to their own working capital to optimize financing by unlocking opportunities that exist right there in their balance sheet. American Express can help minimize the need to borrow by leveraging unsecured credit and allowing such companies to optimize working capital managing funding gaps between payables and receivables with up to 55 interest-free days*.

Knowing what lenders pay close attention to when they're making credit application decisions helps business owners better prepare those applications. And the stronger your application, the better chance you might have of not just a credit approval, but of getting better rates and borrowing terms.

* As a charge card, the balance must always be paid in full each month in which no interest charges will apply. The interest free grace period is 28, 29, 30 or 31 days from the closing date of the current statement to the closing date of the next statement depending on the number of days in the calendar month in which the closing date occurs. The number of interest free days varies based on a variety of factors, including when charges are posted to your account, whether your account is in good standing, and the closing date of your statement