- April 25, 2018
- Posted by: Ken Fortney
- Category: Uncategorized
Getting business funding comes down to you being able to prove that you are a “reliable guarantor” of the funds. When performing an initial interview for someone who wants to get business funding, I always ask the same three questions.
These questions help me gauge within 5-10 minutes the “fund-ability” of the client. Depending on the type of financing you seek as a business owner, you may endure weeks and months of interviews and forms. Most lenders have a regimented selection process to ensure financial safety and take as little risk as possible.
If you enter the funding process prepared to answer the following questions, you will significantly increase your chances of acquiring the business loans you need to grow your business.
What is your credit score?
Having an excellent credit score does not automatically help you get business funding. Having a low credit score does not necessarily disqualify you from funding.
Having an excellent credit does, however, tend to open up more funding options, improving your chances to get business funding.
When asked at networking events, “What is the best terms for a business loan?” I always answer, “The terms you qualify for.” It is best to qualify for more than one lending option, and having a high credit score increases the chances that you will have multiple options.
There are two watershed FICO scores which typically “thin the herd” among loan-seekers.
Credit scores above 680 are generally well-respected by lenders of all types. Credit scores below 600 generally have a more difficult time getting a good business loan on reasonable terms.
If you have a low score, you may still get funded, but you might consider investing in some long term credit repair first, because the lender will only lend to you on very high interest rates.
Getting Business Funding Through Unsecured Loans
One of the most popular forms of business funding are unsecured loans. Unsecured loans are easy to qualify for (which is why nearly every business owner uses them in some form or another), because you can qualify for them based purely on your FICO score.
Whether or not you own collateral, unsecured loans ought to be one of your first considerations. If you do not have any collateral to back a traditional loan, unsecured lending may be your only option.
What do you own?
For most people, “equity” evokes in their minds something pertaining to real estate or a percent stake in a company. When speaking in terms of collateral (an asset backing a secured business loan), “equity” is more fluid in its definition.
Understanding how to leverage your equity as collateral is key to you understanding how you can secure business funding.
When using equity for collateral, equity can be anything you own which has direct financial value: real estate, inventory, equipment, accounts receivables, positive cash flows, just to name a few. The financial value must be transferable to a third party.
For example, good will or sentimental value is not transferable to a third party.
Typically, using assets to get business funding are assets that you can liquidate; that is, they can be converted quickly into cash. Traditional loans, advance rate loans, and lines of credit backed by assets are all forms of secured lending.
The amount borrowed is secured via an asset which, should the borrower default on the loan, can be liquidated to recoup the lender’s loss. The lender does not want to get burned, so they will want to know that if things go south for your business, they are not taking any more risk than they have to.
Businesses with few assets to their name may find it hard to secure a traditional loan. Other business owners may not be able to provide the reassurance that lenders seek to alleviate their concerns that your business may fail and the loan won’t get repaid. So when you approach the lender, it’s just as important to understand the basis on which loans are made as it is to stack up your financials and business plan. – Caron Beesely from the Small Business Administration
Business Development Managers are There to Help You Get Business Funding
When trying to figure out the answer to this question, you may want to speak with a business development manager. They can help you understand what can be leveraged for a loan and what percentage of the assets’ value you can expect to receive in funding.
The most important consideration to make when taking stock of what you own is being able to confidently determine what you can pay back.
All lenders, even unsecured lenders, will not lend to you unless they are assured that you can maintain a healthy pay back schedule. If you are shopping for short-term loans online, the initial interviewer will first ask you about your monthly income/revenues (both business and personal), and if your income is not high enough, the interview will be over.
Can You Prove It?
When interviewing funding candidates, I find that most of them will attest to having a higher credit score or income than they actually do.
It doesn’t matter that much to me if they are lying or mistaken, because I will always require that they submit to me a credit report from CreditCheckTotal.com (my reasons for using this site are many, including the fact that a client can generate their own 3-bureau report without putting any inquiries on their credit).
Many candidates claim to have strong positive cash flows, but they must still submit bank statements and tax returns. No matter how much you believe you have what you need to get business funding: it’s all about what you can prove on paper.
When speaking with a lender, do not claim anything that you cannot prove. Always assure the lender that you will provide the appropriate documents as quickly as possible. Always ask the lender which documents they want to see, and act quickly.
Many entrepreneurs automatically think that they will need to build a full business plan. While I will never discourage any entrepreneur from building a business plan, very few lenders want to see one.
Anything you submit with extraneous information may delay your funding, and you don’t want to accidentally give the lender an opportunity to find something which could “open up a can of worms.”
Don’t Waste the Lender’s Time
Business lenders tend to stay very busy. If you delay providing the appropriate documents, you may get tossed to the side.
It never fails that the client who responds immediately to all documentation requests gets funded the fastest.If you work quickly and still cannot get funded, the lender is often more inclined to give you some pointers for the next time you request funding.
There is no shame in being denied funds if you are honest and responsive. However, if you drag your feet during the documentation process and cannot prove your claim, the lender will move on and assume that you either do not care about getting working capital for your business or that your operation is less than trustworthy.
Again, don’t be afraid to talk to someone. Business development managers exist to help you put your best foot forward before approaching lenders to get business funding. Having more than one funding option is ideal.
The more prepared you are before talking to lenders, the easier it will be to get what you need for your business.