With money and financing on everyone’s mind these days, I asked friend and ACTiVATE Alum Marian White to provide us with some tips on getting ready to get financing. While it is better to ask for it before you really need it, it’s also better to be prepared before you ask. Although she’s referring mainly to business financing in this guest blog, the tips are good for preparing for personal needs as well.
Preparation is key with many things in life. Business financing is no different. In order to properly prepare and position yourself for the journey, make sure you are very familiar with the following 7 topics that may determine your ability to get the financing you seek.
1. Personal credit score. Everything in today’s headlines is about credit and if it’s still available to the small business owner. This affects start-ups (less than 2 years in business) as well as experienced companies. Be familiar with the information stored about you on all three reporting bureaus, TransUnion, Equifax and Experian. Understand the FICO range, 300-850, and know your score. Strong credit is generally considered 720 and above. Many leasing companies will consider applications with minimum scores of 650. Make sure you know what your credit history says about you before applying.
2. Collateral. Collateral is widely required for many financial products, unless you are specifically seeking an unsecured financial solution. Collateral becomes even more important if your credit is not strong. Lenders are generally credit or collateral based; you must be strong in one area of the other. The $125,000 equipment you are looking to lease may not even qualify as stand-alone collateral for the lease or loan; additional collateral may be required, such as real estate or additional equipment already in your ownership.
3. Ability to repay debt. It’s great that you’ve determined how much you need, but how will you pay the debt? Businesses often take months before they generate enough revenue to completely cover debts. Lenders know this. They’ll want to analyze your current revolving debt amount from your credit history, your business bank statements, personal financial statements, as well as your most recent profit and loss statements. You should review this information prior to making application to ensure you can make the necessary payments.
4. Proof of ownership. Be prepared to disclose 100% ownership of your business, although you may only need to provide financial information on anyone who owns 20% or more of the business. IRS documents are normally used to verify business ownership.
5. Planned use of equipment or cash. It’s simply not good enough to say you want the equipment or that you need the cash for your business. You must be able to show the equipment is essential to your business or how the additional capital will help you purchase inventory to grow your business or consolidate your debt. Be prepared with detailed equipment listings from the vendor, including product specifications, intended location of use and delivery dates.
6. Understand the terminology. Personal injection is not a self-induced vaccine shot. It often refers to the down payment or investment amount the business owners bring to the financial transaction. To fully understand your lease payment alternatives, you must know the difference between FMV and $1 out option. Do you know the difference between interest rates and a money factor or how to calculate your loan to value (LTV) ratio? Most terms can be easily researched on the Internet, but if you unsure of how a term affects your transaction stop and ask the financial professional you’re working with to explain each unknown term to you.
7. Finally, remember its just business, nothing personal. No one will ever be as passionate about your company or business idea as you. If your financial broker or lender doesn’t get the same emotional feeling about your products and services as you do, it’s because they’re not supposed to. Lenders are primarily interested in evaluating transactions as risk factors against the likelihood of them getting fully paid on their investment. A good financial partner may even need to remind you of this to better prepare you for submission of your credit application.
As Henry Ford said, “Before everything else, getting ready is the secret to success.” Review these seven steps to level set your expectations as your prepare to navigate the sometime rough waters of credit approval and you’ll find the sea of financing not as stormy as before.
Marian White is the owner of The Grey Financial Group, LLC, a commercial brokerage firm specializing in providing financial products for the small business owner throughout the United States. Prior to starting Grey Financial Group, Marian worked for over 20 years in various corporate positions. She strives to use her experience and training in commercial financing and management/leadership development to educate business owners in running successful businesses of their own, with the highest integrity possible. She is available for speaking engagements, as well as workshop presentations for interested groups. She can be reached at http://greyfinancialgroup.com/.
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The last couple of years have been particularly tough for new business, but now that the economy is starting to turn around more cash is being released. Be creative with where you seek finance – don’t just visit your local broker, check out some of the deals available online.
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Great Tips!
Nothing is more scary than venturing forth in the business world and then borrowing capital for financing the business. But I am a firm believer in the saying “in order to make money, you have to spend money”.
Credit score is very important. More so than previous years. You can get short term loans, pay them off quickly and it will enhance your score, which is a good way of gaining in stature with referencing agencies.
Hey thanks for your tips these are very useful for me now I am planning the same for my wealth.
Good straight forward Tips.
I like it.
Hi!. Thanks for the blog. I’ve been digging around looking some info up for a project, but i think i’m getting lost!. Google lead me here – good for you i guess! Keep up the good work. I will be popping back over in a few days to see if there is updated posts.
This is such an informative blogg, there are some great tips on here for getting things sorted out, thankyou for the valuable information!
Thank you for sharing your thoughts about blogging for financing. a lot of these are very practical and if more business would keep these in mind,reading about financing would probably be a lot more interesting.
your 7 points seems very useful today i learned lot from you post and keep all your points in my mind.thanks.
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In these tough financial times, having one debit on a house or car would be the best option thank 2 as one would be paying to amounts of interest and having this they could or would fall into serious trouble, and get themselves into huge amounts of debit resulting in them loosing their homes or and their cars.
very interesting topics discussed, i agree cash is king, thats my favourite quote!!!
With the present economy, getting a loan is just so difficult. It would be really important to have a good credit score as well as look really good to the lenders or banks. They will look at your ability to pay. Since that is their business. You are absolutely right, in any business, money is king – No money – no Business.
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Great advice, but u have to remember that if your not passionate about your business, then no one else will be. This is great information to someone who owns a business or needs help with business. Thanks for the article.
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Great information with reference to business finance. Credit history and current credit score are of great importance.
Cash in itself certainly plays a vital role and its liquidity. If you can’t show any signs of liquidity then it is unlikely your business will be financed by any other source since they will see that money will only end up being tied up in the company itself.
Great post and great advice. Thanks for sharing.
Great tips here. I agree in that you want to make sure that you don’t overlook SBA and how it can help your small business.
Always pay off your debt when you can, that’s my number one rule. Interest rates are only going to go up from now on.
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Yea..is it ok if I take few points from your blog and use it on my blog? Let me know your views..
you totally need to have all your ducks in a row, you can get denied if something is out of order.
I agree with the above poster. Cash is king.
John@student auto loans´s last blog ..Finding Auto Loan Lenders to Get Your Dream Car
The internet has made getting an auto loan so much easier today than it used to be.
Comfortably, the post is actually the sweetest on this deserving topic. I concur with your conclusions and will eagerly look forward to your upcoming updates.
The lending institutions want to lend money to small business, the problem is they are under a microscope. The underwriting standards are to strict.
One thing that business owners can do is be prepared and not to give up. Don’t over look the SBA. When you have been turned down from a commercial lender the SBA can help by giving the bank a guarantee for part of the funding.
You have some good step to get started on a quest for capital.
Rob
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Pretty nice work.. Is it ok if I link back to this blog from my site? Pls let me know..
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i think this tips are very nice and useful too since i always find problem in getting finance for business and may this tips are very helpful to me.
I think the set of principles you set out is invaluable to any one who is looking for a business loan. There is nothing more frustrating than not understanding why you have not succeeded at something without reason.
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You only have to look at Portsmouth football club here in the UK to see how easy it is for clubs to get into dbet problems! Businesses get into trouble when they build in extra cash to their budget without a guarantee that it will ever materialise.
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this all seems like pretty obvious stuff, but very beneficial. And I agree with Monika, you need cash to start a business. Making your own business can be really fun, so just remember that and don’t get too stressed!
Great article!
Yes everyone should get to know their credit score and how credit works.
Good article. We should always be ready to pay debt and show the proof of ownership. In my opinion, small business is the best thing one can do, with low cash.
Finance is no different to any other industry you are always going to get good mortgage brokers and bad. We have people contact us who ask for a dodgy mortgage. So who is to blame the banks that offers the mortgage, the broker for doing the deal or the client who asks for the finance
jinnie@auto loan calculator´s last blog ..Car payment by the loan lenders
i completely agree with Monika as money is very important and run out quickly and i think this 7 tips are really useful in arranging money for any business.
I am impressed with the content of the article. I have been trying this method and I have seen some real improvements. This method is very useful.
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Before getting any kind of finance, one should prepare himself. As said in comment above, cash does play a vital role. But copying of strategies is not a better idea. Businessman should work out his own ideas/strategies.
I think your tips can be very beneficial for most of the people because many people are interested to take the help from the banks regarding this matter. So it can be a great resource of information. Anyways keep it up and keep continue.
Tiara@Car loan calculator´s last blog ..Car payment by the loan lenders
money does run out quickly especially in the beginning when every cent counts.What makes it more difficult is that you do not know what medium works for you. Its a balance.I suggest talking to as many people that have been successful in business and copy their strategies.
I could agree more with you on what business need to survive. But I’d like add one vital element: CASH. Cash is king and it’s vital keep a close eye on it as there’s plenty of businesses going bust not because they are unprofitable but because they run out of cash.
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