It was never a policy of the banks to explain the process they go through to evaluate your business to determine if and how much of a business line of credit it would qualify for. It has always, until now, been a reactive process.

You submit an application on behalf of your company and you find out 10 days later if your line of credit was granted or denied. If denied very little reason was given. Certainly, not any steps your business must take to get into a position 2-3 months down the road.

About 18 months ago, I spoke to a bank that finally got it.

Washington Mutual (before it merged) in Las Vegas, finally understood the value of educating their customers up front to understand this intimidating process. I explained, the mass benefit to separate their bank from others because they were the first ones to be proactive!

The journey has been an interesting experience and has shed a lot of light on this entire process.

Here are some of my findings:

1. Your personal credit score is very important to the process of your business obtaining lines of credit. But a high personal credit score is not enough.

2. Your level of personal revolving debt is key and you want about a 30% ratio at the most.

Example: You have three personal credit cards with a total limit of $30,000 and your balances total $9,000.  That means you have room for another $21,000 to be charged as needed.

That is a good example of having room on your revolving credit.

3. If your credit cards are maxed out that’s bad news. In total you must have three trade references. No  activity on any credit cards is not good either.

4. Do you have a home equity line of credit? Is it maxed out or close? That is like having a big credit card maxed out and that will really hurt your chances. If open but not maxed that actually may help your situation.

5. From the banks point of view, even if your personal credit score is above 730 but your revolving credit is maxed, they do NOT want to lend your business lines of credit (typically) because they will determine that you have had challenges managing your personal credit up until now and why do they want to risk giving you more credit in the name of the business! Make sense?

You may have a personal credit score of 730 but a very low revolving credit ratio and be in a much better position!

Of course, any derogatory marks are not good.

For example, you can only have TWO 30 day late payments and ONE 60 day late.

Also, judgments or Bankruptcy’s are going to reject your business out of the process. You can have a lien (two or less) in the previous five years that have been released (or paid off).

The LCS score is king! This stands for “Liquid Credit Score”. Have you ever applied for a business line of credit and you knew your personal credit score was over 700 but the bank came back and said, no it only came up at 660?  You may be wondering as I did, does the bank get a      different number? Do you use a different credit bureau? Do they automatically drop your score 40- 50 points just to charge you more interest on a line or loan? None of the above. Actually, there is a big difference between your personal credit score by itself and your personal credit score being evaluated for a line of credit or a loan. Only the bank has access to this process and you do not.

The LCS score is a combination of 4 items:

1. Your personal credit score (revolving debt is a big component).

2. The business’s industry (a high risk industry is much less likely to get a line of credit or much less at a minimum).

3. The business’s gross revenue. The higher the gross revenue the larger the line of credit.

4. Length of time in business. One year is better than six months.

All these factors make up the “LCS” score. The minimum LCS score for a line of credit or a loan is 165. You can take your personal credit score and divide by four as a rough estimate of where your company may stand.

Keep in mind there are other factors as discussed earlier. Guess what?

This will change over time! You know the entire lending industry is changing weekly if not daily so if anything, I would expect the standards to become higher over the next year or so.

That is why I would recommend getting your business in a position sooner rather than later to work on a business credit builder program to maximize vendor credit to help your business get in a position to utilize more cash lines of credit.

About two years ago, I worked with a national bank to break down their lending process for start-up business owners. As you know, banks do not educate you on how they lend money.

The process would be that you would receive an application and it goes to underwriting. That is where the criteria are held mostly in secret. You may hear about general criteria to apply for a business credit card, business line of credit or a business loan, but you will not receive the exact formula!

Here is a list of the key questions to ask your banker when you apply for a business credit card in the name of your new LLC or corporation:

1. What is the lowest my credit score have to be to get approved for the highest credit card limit?

2. When you pull my credit score which personal credit bureau do you pull my score from? It is Experian®, Equifax or Transunion®? (keep in mind it may be different if you were applying for a business line of credit or a loan).

3. What does my personal revolving debt ratios have to be at to qualify for a business credit card?

4. What are your current derogatories that would cause me to get automatically rejected by your bank? In other words, a bank will reject you for a bankruptcy, foreclosure, excessive late payments and large revolving debt settled in the past.

You will receive resistance when you ask these questions because the bankers are not used to working with an educated small business owners. Be persistent and ask them to check with their underwriter and get back to you!

Now, you will be in a better position to find out if you have a shot at receiving financing help from the bank!

Discover how a small business owner can maximize business credit!