From the Author

We often get this question with our new (and sometimes returning) clients. In the following article, we discuss the credit review process and the importance of business credit.

Introduction
Did you know that more than 53 million U.S. citizens don’t have any credit score? In fact, in these cases, there is not enough available information to generate a credit score. Having no credit score can lead you to be underbanked or even unbanked. This can be true not only for you as an individual, but also for your company. This is why it is crucial to understand how the credit review process works when seeking financing.


Credit Review: What Is It?

A credit review refers to an accounting review or inquiry of a business or individual over a specific time. Creditors like financial institutes, settlement companies, banks, credit counselors, and credit bureaus typically perform credit reviews.
In 2021, it is essential for individuals and businesses to check up on their credit health. A credit review serves more than just one purpose. When you look at a credit review from the perspective of a creditor, its main purpose boils down to three points:
⦁ A credit review establishes whether or not a borrower is a credit risk
⦁ A credit review evaluates a potential borrower’s overall credit history
⦁ A credit review brings to light any red flags that may exist in their credit

Creditworthiness

Yes, the objective of a credit review is to establish the creditworthiness of a business or individual. Typically, a credit review serves as a tool that makes it easier to evaluate a person or company’s ability to pay back debt amount.
Credit can be summed up as the level of confidence and trust between the borrower and the lender. Whether you’re a business or an individual, a credit review is a key factor to get denied or approved for financing.

What Does it Take to Build Business Credit in 2021?

Whether you operate a small business or run a big company, you have to meet standard credit criteria to get approval for financing. For instance, you can review public information to conduct the credit review of publicly traded companies.
Unlike public companies, it takes more effort and time to conduct a credit review for private companies. In fact, the credit review process requires the lessee to send certain documentation in order to get approval in most cases. In short, the lessee has to back the story of its company’s creditworthiness through updated documentation.

Documentation Needed for Financing

Ultimately, the range of documentation depends on the size and nature of a company. So, it would be unwise to generalize documentation. Still, there are some standard documents that will typically be requested:
⦁ Past 2 Years Audited or Reviewed Company Financials (Profit & Loss Statement, Balance Sheet) OR Past 2 Years Tax Returns
⦁ General overview of your company and it’s business model
Throughout the process, you may have to produce additional documentation. For instance, the lessee may have to provide a personal guarantee and organizational chart. These additional documentations are great to have on hand, but may not be required for every financing transaction.

Wrap Up

Ideally, you should review your current business credit report. In fact, checking a credit report on a consistent basis can make a big difference, especially if you want to build better credit. Remember, you have the right to review the credit information and review your annual credit report. It is an effective way to keep an eye on your credit score and to start making the decisions that will get you approved for financing.

REFERENCES:
⦁ https://www.facebook.com/businessandcreditsolutions/
⦁ https://www.forbes.com/sites/forbesfinancecouncil/2021/02/08/reimagining-the-credit-review-process-with-open-banking/?sh=1c2636b9689b
⦁ https://blog.icompareloan.com/credit-review-process/
⦁ https://www.ceisreview.com/services/ceis-consulting/credit-risk-process-review/

 

 

Blue Street Capital

Here at Blue Street Capital, we aim to provide you with the most up-to-date information on the financing industry so that you can become an educated buyer. Should you have any questions about this article, or any other information related to the equipment financing industry, please feel free to reach out to us using the contact form below. You may also give us a call at 714-316-1180.