Financing For Business: What Are The Deal Makers Or Deal Breakers?
If you plan on applying for business financing there are a couple of key points that you should take into consideration before taking the leap.
Getting approved for a loan these days requires careful planning and preparation on your part.
Lenders have certain expectations and underwriting criteria they have to meet so the better you come prepared the greater the chances of approval.
Here are my Top 7 Deal Makers or Deal Breakers in Financing for Business:
*Credit - Lenders will evaluate the strength of your personal and business credit scores. You should be fully aware of how you personally rate with the three main consumer credit agencies.
You should also know where your company stands with the three main business credit bureaus as well.
Most traditional lenders will require a minimum personal score of 680 and a business score of 75 in order to be considered.
*Capital - Having skin in the game as a startup is very important to a lender or investor. Typically you should have at least 20% or more of the loan amount you are requesting invested in your business.
Another factor that lenders use to assess your company's capital is to check your company's bank ratings three to six months prior to the date of your loan application.
As mentioned on previous articles you should shoot for a low 5 rating ($10k balance) at least 90 days prior to applying.
*Collateral - Lenders may require that you pledge collateral to secure the loan but not all types are accepted.
While real estate, heavy equipment, CDs, Stocks/Bonds and Accounts Receivable are acceptable forms of collateral items like jewelry, mutual funds and IRAs are typically not.
*Conditions - Certain areas that you have no control over but can affect your ability to obtain financing include economic, environmental and even political conditions.
For example, during the recent economic downturn we have seen how banks and lenders reacted by tightening their grips and cutting or canceling the credit lines of thousands of small businesses.
*Character - Ever heard the saying 'people will do business with people they know, like and trust." Well, it's true!
When you have a solid reputation and operate your business with the highest integrity it will make all the difference in the world.
Get to know your banker and establish a good working relationship. The better rapport you have the easier it will be during the loan application process.
*Capacity - Do you have what it takes to pay back the loan? Lenders need to know that you have the necessary qualifications and experience so they can be assured that there is a minimal risk of default.
One of the ways to present your credit capacity to a lender is through a business plan. A business plan can answer many of the questions that cause lenders to decline an applicant.
*Cash Flow - The flow of cash coming in and going out of your business can tell a lot about how you manage your company's finances. A lender can see firsthand whether your business is generating enough cash flow to repay your loan.
This is where you want to make sure that you are not making unnecessary expenses so your cash flow statement can portray your business in the right light.
Each of these points can play a critical role when seeking financing for your company. The better the preparation you have the greater the possibility for funding approval.
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