If you are a business owner the basics of financial funding are and should be the corner stone of your business plan, your success depends greatly on your ability to obtain the correct amount of funding at the appropriate time. The business loan application process takes a lot of time and while it should be a priority, and you should happily make the time for it, you could potentially waste a lot of unnecessary time. Therefore being prepared, completing your research ahead of time and having a very good understanding of both the kind of financing you want and can be approved for are all extremely important. In business wasting time is often equated with wasting money, so before you head to the bank or contact a lender make sure you are informed as possible.
What Makes a Desirable Borrower?
It goes without saying that depending on what bank or lender you approach the answer to this question would be different. But there are some general rules that most if not all lenders use to determine if you and your company would be desirable borrowers. First and foremost, your ability to pay back your debts; if you are currently in debt or have been unable to pay off your debts in the past then it’s safe to say that you’re an undesirable borrower. Here’s how a lender analyzes a borrower.
- Credit History: This is of the utmost importance to all lenders; good credit history and a good credit score to prove it are a must when applying for financial funding. It’s important that you can prove that you are responsible with money before you are lent any more. This usually means no bankruptcies or collections accounts and a solid repayment history of all other credit accounts.
- Cash Flow: Your potential lender will want you to prove that your business can generate enough money to make payments on a new loan. You’ll have to provide both a business plan and any financial statements that can prove your cash flow.
- Capital Assets: Having both business and personal assets will lower the risk of a loan for your lender, therefore assets are extremely valuable. Furthermore, most business loans need to be personally guaranteed by the owner so that if there were to be a financial issue the owner could cover it with their personal assets. Or, in a worst case scenario, the bank could sell the owner’s personal assets to cover the loan. The bottom line is a lender understands that if an owner puts their own personal assets on the line for a loan then they will be more likely to make payments on time.
- Collateral: While some business owners have cash to put into their business others use collateral, in the form of real estate or another form of valuable asset, to guarantee a loan.
Are You and Your Business Desirable?
Now that you know what lenders are looking for in potential borrowers the next step is to assess your own business and decide if you are in fact a desirable candidate for financial funding. Taking the time to analyze yourself before you head to the bank could end up saving both you and the lender time and money. Here are some questions you should ask yourself to determine if you are a desirable borrower.
- Do you have a good personal credit history and score?
- Does your business produce enough income in a year to cover loan payments?
- Are your personal and business assets strong enough to withstand a potential financial tragedy?
- Do you have any kind of collateral to cover a loan in case you are unable to make payments?
Did you answer yes?
If you were able to answer yes to all of these questions then your chances of being approved for funding to help grow and build your business are high. Obviously it’s not a guarantee that you’ll be accepted but you’re definitely a desirable candidate and it won’t be a waste of time for you or a potential lender. You should research what type of funding will best suit you and your business, get all of your paper work in order and contact a lender that you think is a good match. Financial decisions can be stressful but you’re one step closer to getting the money you need.
Did you answer no?
Unfortunately if you had to answer no to all of these questions then your probability of being approved for funding is quite low. Don’t give up yet, there are many different types of alternative funding for businesses in need of financial help. Take some time to look into your options; you never know where you could find a great match for your company.
Did you answer yes, no and maybe?
If you answered yes to some of the questions and no to others there is still a chance that you could be approved for funding. In this situation your best bet is to look for a less traditional option. Banks might still be open to lending you the money you need but you might have to accept a high interest rate or a smaller loan.
There is a lot of competition and risk associated with business loans and funding, therefore it can seem almost impossible to get approved. One of the best things you can do to prepare yourself for the loan application process is to make sure you’re a desirable candidate before you start. Making sure your credit is in good condition and that you have some kind of collateral, either personal or business will help you stand out from the crowd and increase your chances of being approved.
