Published By Janet Gershen-Siegel at March 19th, 2022
Did you know that you can maximize your loan approvals? It is actually possible to increase your chance of getting business loans? Fundability™ is a big part of it—and it helps you get more money when you get an approval. Paying attention to small details can make a BIG difference. Building business credit can also help.
You’ve been turned down when you’ve tried to get business loans, and you don’t know why. Or you got an approval but didn’t get as much as you wanted and needed. Or your business is getting to a point where you need more financing to get to the next level. Another possibility is that you’ve exhausted other sources of financing. Perhaps you’ve got an intriguing offer or opportunity to help and improve your business. But you can’t take advantage of it until you have more money.
If any of those apply, then this blog is for you.
Of course, every business needs money. And a business loan may end up being your best option. But approvals aren’t guaranteed, and you might not be able to get an approval for as much as you want. What do you do?
There are three Cs which lenders are looking for when determining if they should approve you for a loan:
And there’s a fourth, character. It represents more of your willingness to pay back a loan if you have the means to do so.
Lenders will also be looking at what’s called Fundability. This is the ability of your business to get funding. You have control over a lot of its nuances and details, and they will also help you get loans.
You’ve got three missions when it comes to business loans. The first is to get an approval. And the second and third are to get as much money as you can, at the best terms you can get. Hence there are a few concepts to keep in mind as you apply for business loans.
Check requirements carefully and don’t apply if there’s no way you can get approval. Recognize short terms don’t have to be a deal breaker, particularly if you don’t have a lot of time in business. Consider how much money you need and be realistic about that. Even if you can get more money than you need, avoid scope creep and biting off more than you can chew.
Have a plan and try not to search for loans while under duress. Emergencies happen, but they should be rare exceptions, not the rule. Line up your ducks and prepare to apply for a loan before you need one. This will raise your success rate.
Lenders are always trying to mitigate risk. As a result, they love collateral. Collateral gives lenders a recourse if your business defaults on the loan. Collateral can take several different forms.
Many people are sitting on retirement funds or securities. Stocks and bonds make great collateral. Securities-based lending provides ready access to capital. Use it for almost any purpose, like buying real estate or investing in a business. But you can’t use it for other securities-based transactions like buying shares or repaying margin loans.
You continue to earn interest on stocks pledged as collateral. Closing and funding takes less than 3 weeks. Rates can be as low as 1.6%, but you will have challenged personal credit.
Get securities-based lending for bonds through large financial institutions and private banks. These kinds of loans are good if you want to make a large business acquisition. They are also good if you want to execute large transactions like real estate purchases.
Lenders determine the value of the loan based on the borrower’s investment portfolio. In some cases, the issuer of the loan may determine eligibility based on the underlying asset. It can end up approving a loan based on a portfolio of US Treasury notes rather than stocks.
You can use most investment-grade corporate, treasury, municipal, and government agency bonds. You keep all the interest and appreciation from your securities. To qualify all the lender will need is a copy of your two most recent securities statements. If your stocks or bonds are worth over $25,000, you can get approval. This works even with severely challenged personal credit.
You can also put up 401(k)s and IRAs can as collateral. In fact, the IRS ROBS (Roll Over for Business Startup) plan makes it easy to tap into an IRA or a 401(k). With ROBS, your retirement funds roll into a new plan, and that plan invests in your business!
It is not a loan. You need not pay an early withdrawal fee or a tax penalty. You put the money back by contributing, like with any 401(k) program. As a result, you won’t lose your retirement funds. This is a 401(k) Rollover for Working Capital program.
Per the IRS, a ROBS qualified plan is a separate entity with its own requirements. The plan, through its company stock investments, owns the trade or business. This is rather than the individual owning the plan. Hence some filing exceptions for individuals may not apply to such a plan. This type of financing isn’t a loan against, your 401(k), so there’s no interest to pay. This is a movement or change of custodian.
Low rates, often less than 5%. Your 401(k) must have more than $35,000 in it. Can usually get up to 100% of what’s “rollable” within your 401(k). The lender will want a copy of your two most recent 401(k) statements.
You can get 401(k) financing even with severely challenged personal credit. The 401(k) you use cannot be from a business where you are currently employed. You cannot be currently contributing to it.
Like 401(k) financing. In as little as 3 weeks, you can invest some of your retirement funds into your business. This gives you more control over the performance of your retirement plan assets. And it gives you the working capital you need for business growth.
In general, you will work with a CPA. They will help you roll over a non-contributing and qualifying account. This allows for cash out of half, or $50,000, whichever is less. If applicable, the CPA will structure a self-directing IRA for the remaining funds.
Lenders love good personal credit scores. A high FICO score is an assurance that you pay your bills. What if you don’t have such good personal credit? Then work with a guarantor or a credit partner who does.
A credit line hybrid is a form of unsecured funding. Our credit line hybrid has an even better interest rate than a secured loan. Get some of the highest loan amounts and credit lines for businesses. And get 0% business credit cards with stated income. These report to business CRAs, so you can build business credit at the same time. This will get you access to even more cash.
You need a good credit score or a guarantor with good credit to get an approval (a FICO score of at least 680). No financials necessary. Loans go up to $150,000. You must have open revolving accounts now on your credit report. Balances must be below 40% of your limits.
Business credit is credit in the name of the business and not its owner. An owner with bad personal credit can still have good business credit. A good business credit score provides another assurance to a lender. And since it’s mostly based on repayments, it’s a very reliable indicator for lenders.
Business credit doesn’t come to you automatically; you must work to build it. As you plan for maximizing your loan approvals, it makes sense to build business credit. Vendors are a large part of the process
Starter vendors are open to working with most businesses, even startup ventures. Make sure vendors report to the CRAs—most don’t. Vendors tend to report to the business CRAs within 60 days. They help you build your business credit profile and score.
Terms will vary depending on the vendor, but they tend to be Net 30. Most will want your business to be set up right. This means an EIN, a business bank account, a separate business address, and more.
With vendor credit, you will not need collateral, good personal credit or even cash flow. Buy what you need on credit, pay the bill on time, and your business credit will improve. And, in turn, your chances for loans, and for higher amounts, will also improve.
Sometimes, the best loan isn’t a loan at all. Do you have as-yet unpaid invoices from credit card sales? Have you been in business for at least 6 months? Then your best financing product might be merchant cash advances.
An MCA technically isn’t a loan. Rather, it is a cash advance based upon the credit card sales of a business. A small business can apply for an MCA, and have an advance deposited into its account quickly. So you can offer Net 30 terms but need not wait a month for payment.
This can be ideal if you accept credit cards and want fast and easy financing. Get funding, based on cash flow as verifiable per business bank statements—and no more. Hence lenders in general will not ask for any burdensome document requests.
A lender will review 3 months of bank and merchant account statements. They want consistent deposits. Deposits must show revenue is $50,000 or higher per year They will also verify time in business of 6 months or more.
You can’t have a lot of Non-Sufficient-Funds (NSFs) on your bank statements. And you can’t have a lot of chargebacks on your merchant statements. Plus, you need more than 10 deposits in a month going into your bank account. In essence, you have to show you can manage your bank and merchant accounts well. You need a decent number of consistent credit card transaction deposits each month.
Fundability consists of over 100 separate factors. These factors help your business get loans and build business credit. And they can assure your customers and prospects. Let’s concentrate on aspects of Fundability relating to business loans and lending.
The application process and application submission is a pillar of Fundability. Application submission consists of eight separate elements. Details like these can make a real difference in your chances of approval.
The first three details are all about verifiability. Can a lender verify these details? They are business ownership, company address, and business name.
You can help make these details readily verifiable. So make sure your business details are consistent everywhere. This means online places like your website. And it means offline places like the name and address on your business licenses (if necessary).
When details are consistent everywhere, lenders run a quick search for your business. They’ll find a match and that gets you further along in the process. Because if they don’t find a match, they’ll deny your application as fraud. This is regardless of your character and intentions.
Some lending products may work better for your business than others. For example, a startup business with little consistent cash flow. Hence, it should concentrate on a product where cash flow is less of an issue if it’s an issue at all. Or you may find a loan isn’t your best choice—a line of credit might suit your needs better.
With the internet, your lender doesn’t have to be around the corner anymore. The internet also means you can do some sleuthing. The lender where you have your business bank account should be one possible choice. But also take to Google and search for (your industry) business loans. E.g. cannabis business loans or nail salon business loans.
If you’ve never heard of a lender, check the Better Business Bureau and Yelp first. Look for complaints and lawsuits so you can assure you’re dealing with a reputable lender. A lender which specializes in your industry is a lot more likely to say ‘yes’. They know if your business has potential even if your balance sheet says otherwise.
Applying for a loan right after your business shows an uptick in profits, can help make a ‘yes’ a lot more possible. This is a lot harder to do if you’re reacting to a crisis, rather than proactively planning for the future.
Did you know you can negotiate business loan terms? You can negotiate the interest rate, prepayment terms, and even if you must provide a personal guarantee. The means of delivering your application can also matter. This is because in person applications are much more conducive to negotiations.
The amount of money you can get often ties to a few more aspects of Fundability, as are the repayment terms you can get. These are details like how long you’ve been in business. Can produce all necessary business tax returns?
If your business is higher risk than others, that affects approvals. Your business name, industry, and/or NAICS and SIC codes can signal that. Also, if your business has UCC filings or liens against it. If your business has been through bankruptcy (or you have), it will affect your chances. As will are any judgments against it. If you have a criminal record and/or owe child support, those will also affect your chances.
Maximizing your loan applications means increasing your chances of getting business loan approvals. Improve your chances with good personal and/or business credit. Provable cash flow and having valuable collateral to offer also help. You can also improve your chances, and maximize how much you can get, by building Fundability™.