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Funding instruments are always a slightly moving target in all markets. Hard credit rules are constantly changing as underwriters and credit teams are under pressure to make the right decisions; Their jobs depend on it. The pressure on one end for lenders is to reduce bad debt by avoiding financing customers who end up in default. Lenders and investors, on the other hand, need to make a profit and are required by federal regulations to approve a certain number of loans. The outlook is gloomy for both the client and the finance agent but we can confirm that investors are still lending and acceptances are much higher than last year.
What are some general approval guidelines?
Full financial disclosure is best for quick decision making. Knowing how your credit, assets, liabilities look like and how your company is performing will provide the underwriter with a complete picture thus allowing them to offer the best terms. Hiding bad debt will almost always get exposed and delay or eliminate the appraisal process so put all your cards on the table. Explain specific losses or why some bills were not paid.
View your own credit score or Dun & Bradstreet report; If something negative pops up, work to fix or rectify it before filling the application; There are many agencies that help to repair or fix credit quickly. Correct the problem and keep proof that it has been corrected; This step will show the underwriter that your credit is being managed properly.
If your business is small, be prepared to PG (personally guarantee) your finances. It is a blanket guarantee with your assets as a pledge that you will make your payments. If you don’t, then like any creditor, they will foreclose or take advantage of your assets to pay off the debt. Years ago, small businesses were not routinely asked for PGs, but now, they are. Lenders figure that if you don’t “believe” in your business and are willing to stand behind it, why should they. side note; Often high net worth individuals with little cash flow feel they should be approved based on what they are worth. This is often not the case, lenders are not in the business of filing lawsuits and chasing properties for repayment, which often results in them losing money anyway. They want to lend to businesses that are more likely to pay them back through their normal business operations.
Finally, write a brief summary of yourself, your business, and why your company would benefit from the funding request. Whether you’re a vendor or a borrower, adding a human touch to a finance application goes further than many people realize. Describe the length of time you have been in business, who the owners are with a brief background, what products you sell and what regions or markets you serve, and describe the opportunities. This is how you would describe the business to a stranger in a two-minute introduction.
This market requires awareness and flexibility on both sides of the transaction; It’s not what lending was five years ago, but it will be much better for all of us in the long run. Remember, you are asking a stranger to borrow money, who has to be comfortable with your ability and willingness to pay them back.
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