I hope this isn't a hijack and let me know if it is. Who are you guys using for banks? I asked for a SBA loan from US Bank and I have stellar credit rating, pay my bills on time, along with a great day job and still no luck. I need to get the ball rolling for building business history.
I'm beginning to wonder what the reward is for paying your bills...
When you look at failure rates for startup businesses, its not hard to understand why its tough to get a loan for general startup purposes. 1/3 of startups fail within 2 yrs, and well over half of them are gone in 4 yrs. In most instances, there's a very small fraction of the principal of such loans recovered when the business fails.
Imagine how hard it would be to get a car loan or a home mortgage if lenders knew they'd have to repossess 1/3 of them within 2 yrs and they'd only recover 10 cents on the dollar if they were lucky. Add in the fact that having a good job and paying your personal bills on time really isn't a predictor of ability to operate a business successfully enough to repay a business loan, and the prospect of a startup loan becomes largely a shot in the dark rather than a calculable risk for the lender.
My dad would be a pretty good example of the big divide between personal credit and business credit. Back around 04 or 05 he made a deal to buy out a partner's interest for about $350K in a piece of property they co-owned and held a clear deed to. He considered getting a loan, so he called the branch manager of the bank he dealt with and told him what he was interested in. The man called back within a couple hours and said they'd loan the money at the then current prime rate plus 1/4%. Just let them know if he wanted to proceed, and they'd have the money ready in a couple days. No mention of P&L's or a property appraisal or anything like that. Obviously, they'd have a lien on the property during the course of the loan, but the qualifying process was about like the average person with good credit buying a car. The only question they really asked was whether or not any money was owed on the property, and when he said no, they accepted that as fact.
Why so simple? Been doing business with them for 45+ yrs. About $1 mil on deposit with them in various accounts. Previously borrowed about $300K from them back in the mid 70's on a 3 yr note for machinery related to business expansion, and repaid it on schedule. Pretty much the perfect example of how easy it is to borrow money if you don't need it. He ultimately decided to pay the partner in cash since the interest saved was far more than the interest he'd have gotten if he left the cash in the bank.
OTOH, on a personal basis, he'd probably have difficulty buying a new car or other similar purchase on credit. First thing they'd do is run a credit check on him, and it'd come up blank. Keeping up with the payments on a 63 Ford or paying off a home mortgage in the early 70's isn't the sort of information the credit agencies are going to have, and those would be the two latest examples of him having personal credit. The only way they'll have any info about how you pay utlilty bills and such is if you DON'T pay them. IOW, his personal credit history would look about like that of a 15 yr old kid. Anyone knows if you've got good credit any credit card you have will have its limit raised over time even if yo don't request the increase. Not his. He puts gas, small tools and such on a credit card he's had since the 60's and pays it off at the end of the month as a convenience rather than having to deal with a bunch of petty cash receipts. That card has a $2000 limit, same as it had 40 yrs ago. Never carrying a balance and having such a low credit limit wouldn't impress a lender even if the credit reporting agencies happened to have a file on it. More likely it'd make them wonder what caused the limit to be so low, and if there are past repo's etc that they're just not seeing. Having a bunch of money in the bank might be an indicator of
ability to repay, but its no indicator of
willingness to repay since the world is full of examples of people with a lot of assets who've gotten a lot of what they have by being total deadbeats when it comes to personal financial responsibility.
All done, personal credit is built by buying things on credit and making the payments on time. Business credit obviously considers any payment of prior business loans, but how long you've been in business and proof that the business has been profitable has a far greater impact on ability to get a business loan. And there's not a lot of common ground between the two unless you're willing to put up personal assets as collateral for a business loan.
