A business credit application is a request for an extension of credit via an oral or written form from one business to another. This often is when a supplier or vendor needs more time to pay, or can’t pay cash up front for the goods and services being rendered. Regardless of how you’ll use this credit application in your business, your credit application must legally contain all relevant information concerning the cost of the credit for the borrower, including the Annual Percentage Yield (APY), the term of the credit and all associated fees.

Credit application processes are mostly automated and faster these days as there are new emerging financial systems in the credit market. With the aid of technology, lenders can now offer borrowers different types of credit applications that can be operated individually.

What Is a Business Credit Application? 

A credit application is a business contract between a seller and a buyer. A good credit application will yield a positive result for the seller, while a bad one will affect the buyers. Hence, it is crucial that every business owner applying for credit whether online or offline put all necessary items in place to safeguard and guarantee that’ll be minimal customer risk. 

Securing a credit application does not guarantee payment, but it is one of the most crucial documents any business owner seeking credit must possess. This application can facilitate the collectability of your previous due accounts receivable and collection fees.

Getting approval for your credit application for your business depends on how the borrower feels about your business. Hence, it is crucial to package your application well and show that your business is creditworthy.

Since lenders are keen on verifying that you can pay back your credit, the credit application process can be quite overwhelming at times. Your application is the perfect place to prove to credit borrowers that you and will repay your loans successfully. It is important to convince lenders that your business is reliable, profitable, and has long-term goals. You must be prepared and put in your best when filling out your credit application.

Credit Application Requirement

To complete your credit application, you must provide some document to the lenders to verify your business’s financial history and authenticity. Note that requirement varies per lender, below are some of the documents you’re likely to be asked:

  • Owner’s portfolio
  • Type of entity
  • Business portfolio
  • Cash flow statements
  • Franchise agreement
  • Bank references
  • Articles of incorporation
  • Income spreadsheet
  • Profit and loss report
  • Statement of owner’s equity
  • Bank statements
  • Collateral documentation
  • Commercial licenses
  • Trade references
  • Tax returns
  • Business Licenses and registrations

Business Credit Application Tips

To give your credit application an edge over others, ensure to make it as genuine as possible because getting a small business loan can be quite difficult. Being prepared with the right information and documents can help simplify the credit application process. This will help you easily get the capital needed to take your business to the next level. Below are some of the steps to be taken to simplify and speed up your application process:

  • Maintain a Good Credit

Financial institutions have different credit requirements, and a good credit score is a vital part of the criteria. Paying your bills is very important because it will keep your credit in good standing. To get approval for your credit application, you must meet some credit requirement, so it is important to have the best credit score. Try as much as you can to avoid bankruptcies, charge-offs, late payments and foreclosures. Applying for several loans at a go might hinder your chances of getting any financial assistant. So, it is advisable to apply for one loan at a time.

  • Pick the perfect loan for your business

Understand the type of loan that works best for your business and apply for it. Applying for a high-end loan like a Small Business Administration (SBA) loan when all your business needs is a line of credit will slow down the application process and even sabotage the chances of approval. The difficulty of getting a loan depends on the program you are applying for. For a program like SBA that has a higher standard, the requirement and process take an average of 30 – 90 days to complete. The situation is not so when applying for a line of credit or merchant cash advance, the requirement and documents required are less rigorous.

All loans are not the same and to improve your chances of getting approval, ensure you are applying for the right loan for your business. Below are some of the most common loans for businesses:

  • Installment loan

This is an instalment or term loan that is issued once to the borrower. Payment of this loan is made at regular intervals or instalments, and there is an interest attached to repayment.

  • Short-Term loan

This is a short-term loan that is paid once with a fixed fee that is added to the repayment amount. Repayment is made at regular intervals over a short period.

  • Line of credit

This involves funds that can be accessed when needed by a borrower.

Others include;

  • Merchant Cash Advance
  • Invoice factoring

It is advisable to carefully choose the loan that is suitable for your business. There is no need for applying for several loans that are not right for your business. Identify the right loan and apply for it to improve your chances of getting an approval.

  • Show proof of financial capability 

For an already existing business, financial institutions want to see evidence of cash flow sufficient to make your monthly loan repayments. Financial institutions will carry out their investigations by looking at your previous tax returns and existing debt. If you are buying a business or just starting a business from the scratch, you should be able to show a comprehensive financial projection of the business. Provide proof of financial plan that shows you will be able to make your monthly loan repayments.

  • Create a Business Plan

Most times this is not required by lenders, but having it gives you an upper hand and it shows how organized, prepared and responsible your business is. A solid business plan can be used to convince lenders why your business needs a loan and how it would benefit your business.

Also, a business plan lets you provide a realistic repayment plan which guarantees lenders that you have plans to repay your loan.

  • Understand that Bank Differs

Every lending institutions have their pros, cons and laws binding lenders and borrowers. Oftentimes, prominent banks are filled with bigger clients, because they offer bigger loans which in turns means more profit for the institution. Although in some cases, these prominent institutions might approve to finance your business, you could achieve the same or more with smaller banks.

Hence it is important to get information about any issuing bank you are sending your application to. In most cases, big banks are filled with clients who are high qualifiers to loans which might exclude small businesses, while small banks are usually established on a personal relationship.

  • Have a Solid Plan

Lenders will want you to show that you have a solid purpose for your business loan. You must give a valid reason why your business needs funding and what exactly the fund would be used for. Below are some of the reason why small businesses seek loan:

  • Business expansion
  • To increase cash flow
  • Equipment update
  • Hiring/training both old and new staff
  • Inventory purchase

Generally, when filling out your credit application, give a valid why your business needs funding and explain in detail how the fund will help your business grow.

  • Be realistic with Your demand

To better your chances of getting an approval, it is important to be realistic about how much fund your business needs. Be neutral in your demand, don’t underestimate your expenses or ask for too much. Be deliberate about your demand, research extensively to get the accurate cost of things before stating any amount.

  • Have a Substantial Collateral

Most lenders have a specific collateral requirement that every borrower must meet. If you don’t have the assets to meet the specified requirement, you might not be approved for the loan. Ensure to carefully research your lender’s borrower’s requirement to know exactly what is required of you. In some cases, most lenders require specific assets while others ask for a blanket lien or personal guarantee. 

Once you are sure of the collateral your business can offer, prepare a document listing every asset offer. This should be included in your credit application to show lenders that you have something to lose if you default on repayment.

  • Prepare your document

Getting all relevant documents needed to facilitate your application will help speed up the process. You must show transparency into the financial status of your business. The application process will be seamless if you can provide accurate and up-to-date accounting and tax records of your business. 

Ensure you have a system that keeps and records all financial details concerning your business. If it is not too much hassle, and there is a budget for it, you can get an accountant to sort every detail concerning finance.

Below are other tips that can facilitate your credit application:

  • Use an Accounting Software
  • Develop a cash flow projection
  • Be professional 
  • Seek help
  • Leverage on social media
  • Increase your debt service coverage ratio (DSCR)
  • Offset any existing debt