If you are going into business or are already in business you should be aware of your personal and business credit. Of the two the personal credit report is the most important in my opinion. Pay attention to your credit score as well as the entries in your credit file. When you complete an application for credit and submit it for approval, the first step or close to the first step is to pull a personal credit report on the owners of the business. Credit reports are pulled on all owners that own 10% or more in the business. Sometimes a funding source will pull credit on everyone that owns a piece of the business, even a very small percentage. It is at this point that a basic decision is made. Reject the transaction, send it to pending for additional information and explanation of certain items, or the best decision, it is approved as submitted if the business meets other criteria. In this instance a good credit report will result in an approval and you get the equipment to further increase the value of your business. How much a good credit report is worth to you is determined by what the equipment will do for you and the business versus having your credit turned down and not being able to purchase the needed equipment.
Another important tip is to be aware of the credit of your partners. Sometimes we are hesitant to ask someone we are in business with or going into business with what their credit is like. However, the consequences of not being aware can be very costly. More than once I’ve seen the following situation or similar situation prevent a transactions approval. A typical example would be either a partnership or a closely held corporation. They are all listed as owners and have equal or different percentages of ownership. One or two of the partners can have very good credit, 680 FICO or better. The other partner may be credit challenged and the FICO may be 640 or less. A situation like this could result in the transaction being turned down. Or an approval may be granted with conditions that are tough to meet.
Following is an example that illustrates the difference: Assumptions: $20,000 amount to finance; 60 monthly payments; 2 advance payments; $1.00 residual.
Payment with a 620 FICO $666.00 per month
Payment with a 680 FICO $490.00 per month
There is always an exception to every rule. If you would like to discuss your situation or just would like more information please complete the form and one of our staff will get in touch with you.