By Lyca De Jesus
For many entrepreneurs, the initial financing from a business loan can give a great head start for running a business smoothly, especially in its first few months. With enough funding from the loan, an entrepreneur is well-equipped to invest in several things that can ensure the growth of their business, like equipment, inventory, and staffing.
There are a lot of financial entities that small- and medium-sized enterprise (SME) owners, in particular, can get a loan, and many investors and creditors willing to give them a shot. But to get a loan with the most favorable terms, an entrepreneur will first need to earn the trust of either one.
Businesses that seem likely to fulfill their financial obligations are perceived as attractive borrowers by lenders and viable investment opportunities for investors, representing a lower default risk and more chances for the latter to gain their own returns. What typically sets a trustworthy business apart from others are its stable and predictable financial performance and its track record of meeting its goals and obligations.
A business that boasts a consistent revenue stream, strong cash flow management, and sound financial controls in place has the best chances of securing funding from either an investor or a lender. If you’re an SME entrepreneur who wants to earn the trust of their investors and creditors, here are some things you can do:
1) Register Your Business
Before seeking investments or credit, it’s essential to fully register your SME as a legitimate business entity. This demonstrates your commitment to operating within the bounds of the law, signaling to investors and creditors that you take your business seriously.
Your business’s official registration also provides creditors and lenders with the necessary assurance that they’re pooling their support towards legitimate business activities. Don’t be remiss in making sure that your business is registered with the appropriate government authorities and that it adheres to all legal requirements and regulations in your jurisdiction.
2) Pay Your Employees and Suppliers on Time
Consistently paying your employees and suppliers on time is crucial for establishing trust with investors and creditors. Timely payments are markers of both reliability and financial stability, which are key factors that investors and creditors consider when assessing the risk of doing business with you.
Late payments may signal underlying financial issues or mismanagement, which can erode trust and make it more challenging to secure funding or credit in the future. Build your track record for creditworthiness by prioritizing prompt payments to your employees and suppliers, and establish a reputation for your company that reflects your financial responsibility.
It can be challenging to keep track of your employees’ salaries and payments to your suppliers, especially when you’re handling several other key tasks for your business. Fortunately, there are plenty of SME business banking solutions out there that can make these processes easy while also streamlining your financial records.
Take the Philippines’ Maya Business Deposit as an example. This product from Maya Business provides you with a hassle-free way to disburse salaries and benefits to your employees, as well as send money to your partners and suppliers. You can transfer for free via PesoNet and InstaPay, and you don’t need to subscribe to a minimum balance to use this service. What’s more, this product boasts a high business deposit interest rate in the Philippines—up to 20 to 25 times more than the average bank. Your ability to manage your business finances on Maya Business’s efficient and user-friendly platform should contribute towards your creditworthiness.
3) Get a Credit Card for Your Business
Obtaining a credit card specifically for your business can be a very effective strategy for building credit and improving the management of your cash flow. If you can commit to using your business credit card responsibly, it won’t be hard to establish a positive credit history for your company—which is essential for earning the trust of investors and creditors.
Having a business credit card also provides you with a convenient way to track your business expenses and separate them from your personal finances, which you may have initially dipped into to start your SME. This level of organization and transparency, paired with a good track record of using your business credit card as intended, can instill confidence in your potential investors and creditors.
4) Keep Your Credit Utilization Low
High credit utilization can signal financial strain and increase the perceived risk that comes from doing business with you. You should aim to keep your credit card balances and other outstanding debts well below your available credit limits. This should assure your creditors that you’re not overly reliant on credit and can manage your finances responsibly.
Also be sure to regularly monitor your credit utilization and take the necessary steps to keep it low. This will strengthen your creditworthiness over time and, in turn, enhance your ability to secure favorable financing terms and attract investment opportunities for your business.
5) Don’t Close Your Existing Business Credit Accounts
While it may be tempting to close your unused credit accounts, especially if these come with annual fees or high interest rates, doing so can actually harm your business credit score. Closing accounts reduces your available credit and can increase your credit utilization ratio, potentially lowering your credit score and undermining your ability to earn the trust of potential investors and creditors.
Instead of closing your accounts, keep them open and use them occasionally for small purchases to ensure that they stay active. This can help you manage your credit responsibly and contribute to a longer credit history—both of which can have a positive impact on your business creditworthiness.
If you have concerns about the terms or fees associated with certain credit accounts, explore options for negotiating with your creditors or consider transferring balances to more favorable accounts. In general, a diverse portfolio of credit accounts—paired with a wise approach to maintaining all of them—can strengthen your overall credit profile and enhance your credibility. There’s no doubt that it will take time and effort to earn the trust of those who could financially support your business. However, once this trust is earned—and once you have good creditors and investors on your side—the odds of your business prospering in its home industry will be significantly higher than if you weathered through things alone. Knowing what financial opportunities may lie ahead of you, make it one of your priorities to strengthen your creditworthiness.
