Utah Business

Posts Tagged ‘Credit Score’

It is not easy for small businesses to get small business loans. Banks and other lenders require them to go through strict and complicated financial procedures with stringent requirements for qualification. After everything, credit approval is not even guaranteed.

Even the financing for loans supported by the Small Business Administration (SBA) cannot meet the needs of the majority of small businesses. Although the amount of credit available for small businesses has reportedly been increased by 25% since March this year, it is not that easy to avail of the said small business loans.

Small businesses seeking small business loans should know how to prepare the right kind of business plans that banks are looking for. To justify the loan, they should be able to show the banks in detail how they intend to use the money in business and how viable their plan is. Experts say lenders have specific points which they scrutinize applications for and applicants should know these points and tailor their submitted business plans accordingly.

It is also said that loan applicants should first establish a strong relationship with the lending bank in order to increase the possibility of having a loan approved. Banks supposedly give more small business loans to businesses they have already known and trusted long term. Since small businesses are usually new businesses, this is quite difficult to do and it cannot be done in a hurry. How can a new small business with financial needs establish a good long term relationship with a bank in time to meet its current needs?

Another requirement of lending institutions from small businesses applying for small business loans is a good credit history score.  A small business should first be deemed credit worthy by the bank before it can even be considered for loan approval. Again, small businesses that are stll young are at an immediate disadvantage here. How can they establish credit worthiness in time?

The US Congress has also placed Congressional restrictions on eligibility for the Small Business Administration loans. Small businesses first have to prove that they are at least two years old and are both struggling and viable at the same time. They should present proof that they have had a positive cash flow in one of those previous two years in business. They should, however, be currently struggling with “immediate financial hardship” with a decrease in income that should not be less than 20 percent. At the same time, they should submit their projections for cash flow for the next two years, proving that they will be able to meet loan payments.

A faster way to get small business loans would be through credit card services.

Any small business should have credit card services. Credit card services enable a company to accept customer payments for goods and services via credit cards or debit cards, whether over the counter in brick and mortar settings, through the phone or online. Credit card services provide the hardware and software for this.

Being able to accept payments through credit cards or debit cards can greatly enhance a small business’ income earning potentials. In addition to that, credit card services can provide the equivalent of small business loans with no need for any collateral. The amount of the small business loans are computed based on the average monthly income of the small business from credit card payments. The small business loans are then amortized through automatic monthly deductions of a certain percentage from the small business’ future credit card revenue. This means small businesses can almost automatically qualify for small business loans through credit card services, and will surely be able to pay such small business loans. Is there a faster way than this?

all listening attentively about lenders on the radio, television, newspapers, and the Internet of promises to be “small business friendly”, “small business oriented”, wanting to be your “personal small business advisor” and a panoply of packages taking care of all your business needs. What small businesses really need is money, not personal hand caring services. So is there anyone out there really making small business loans? Yes. If you know where to look you can find one.

You can generally categorize banks into: 1) 10% that are actually making small business loans now and are serious about doing so, 2) 70% who will talk to you directly and indicate they are not making small business loans at this time because of the economy, and 3) 20% that slap you on the back, invite you in, and readily take your application. It is the latter group that gives us the most heartburn. It is not unusual after the initial review of your application papers for a bank represented to signal you have a good chance. Overjoyed, you begin to make plans, including executing contracts and receiving quotes for inventory, raw materials, or merchandise. Two months later, after the fourth loan committee review, you get a call that they have decided not to make the loan. The reason has little if anything to do with credit. It is typically something that was never been mentioned before and after reflection, it seems like an excuse not to make the loan in the first place.

Loan brokers such as myself are victims of the same misleading behavior. I cannot tell you how many banks have looked me in the eye and said: “Sure, we are making lots of loans. For unsecured loans of $75,000 to $150,000, we just need a credit score above 680, in business for over a year and a half, and decent financials. Real estate security is not required. We would love to entertain your applications.” Right.

What they really do is pour over the applications and pick 1 out of 100 that has the following fantasy credentials: a platinum credit score that Bill Gates would be proud of and which could support a small country, gushing positive cash flow, little competition, executed contracts stacked high on your desk, then a booming market niche. In other words, someone who doesn’t need the loan in the first place. You know the old adage: banks only give money to people who don’t need it.

It is simply psychology 101. Banks are filled up with loan officers and they have to show they are busy. If their boss walks into their office and sees nothing on their desk, they might be laid off. They have to show they are busy earning their salaries, which means receiving applications and going through the review process. It’s gotten so bad that the other day we had a client whose grandfather helped found the bank, whose father was best friends with the president, and who had received two successful loans before. Even he was turned down. Nor do they tell you the large SBA commercial loan department job layoffs of employees throughout the nation.

To prevent being too caught in this trap, look your banker in the eye and ask these questions:

1) “Tell me honestly. I don’t want to waste your time or mine. I know the credit crunch is quite depressing and there is really no secondary market. Are you actually entertaining small business loans at this time or should I wait.”

2) “How many small business loans have you personally made in the last 30 days?”

3) “What are the loan terms of the last three loans you made, including interest rate and monthly payments, for the amount of loan I am seeking?”

4) “How long will it take before I get a definitive answer?”

5) “Can you briefly describe to me the process I have to go through to get the final approval? Will you be the one making the final decision? What other people superior to you or committees will make that decision?”

But do not despair. There actually are real live prime lenders out there making small business loans. They just need to know where to look. In the next article I will discuss if such loans are available to startups.