Last month the title of my article was the same as above with the exception of “Part 2!”. When I closed out last month’s newsletter I wrote the following.

What else? – This is one of a two part article. Above is all the credit scenarios that are taken into consideration to obtain financing and eventually has a big part in determining your approval and final interest rate. Next month we will discuss the criteria outside of credit that means a lot to lenders.

Time In Business (TIB) – I believe it is safe to say that every brand-new business owner that obtains financing for their new business is very confident that they will be able to make payments on their new loan. Unfortunately there are repossessions that happen and every lender that will loan to start-up businesses has a department to see the property that they have to take back. Start-ups are considered 24 months and less in business. After that time lenders know that the chancel of survival of a business increases dramatically which in turn lowers the rates. Five years is another business milestone and these borrowers (If they have kept their credit good) will obtain the very best rates.

Bank Balances – The total revenue of a business comes into play less than one might think. What lenders are concerned with are “ending balances”. This is the balance in your account at the end of the month. There may be a borrower with exceptional credit but they consistently have less than $1000 at the end of the month. This would be a huge warning sign as it would make sense to a lender that if an account was lost, slow sales, weather or any other reason where business might temporarily suffer then funds would not be available to pay their payment as well as keep up with other business obligations.

Non-sufficient Funds (NSF) - Although not having funds to cover a check is significant to a lender there are often legitimate reasons the NSF happened in the first place. Bookkeeping errors? Incoming deposits bounced? Change of vendor payment methods? It impresses a lender to know the ‘story’ upfront if there is one. Be proactive when you know that a lender will be going over your statements. Some lenders say absolutely no NSF over last 6 months while others may allow an occasional NSF.

Will Equipment Increase Revenue – A significant amount of consideration is given by lenders to determine how “business essential” a buyers purchase is and what type of affect it will have to the bottom line. For example, a owner/operator that has a long-haul truck wants to buy a second one and hire a driver. Obviously gross revenue will be doubled. The flip side to that is a large contracting company would like to buy a boat to entertain current clients and hopefully create new ones. A lender doesn’t see this second example as ‘business essential’.

Home Ownership – Lenders place a lot of weight on home ownership. That is not to say that there are not many non-homeowners who have exceptional credit and business history, but lenders do know that delinquencies and defaults are lower when someone is a homeowner. Part of the suspected reasoning is the stability of a borrower for their current location as well as an increased net-worth.

Public Records – Every credit will show public records. Bankruptcies, child support, tax liens are the main 3 although recent law changes have made it so tax liens are no longer showing on any of the 3 main credit bureaus. Almost all lenders will now pull a background check to look for tax liens. Ideally, no one wants any public records on either report.

Between last month’s hints on credit and the additional information above I know it can seem like a lot goes into a decision making process by the lender; it does! The differences between rates and terms are huge in the commercial lending world. If you are not getting the type of rates for financing that you think you deserve then I encourage you to address the information in these last two articles.

Have a successful month,

Tim