While finding funding for your business is a long, involved process, there are some common “red flags” that underwriters recognize and monitor that could have a dramatic impact on the likelihood of success in your search. Here are some of the most common red flags underwriters will be looking for, which you should be aware of:
Finding and applying for business funding is a process that requires patience, time, and proper documentation to complete. There are a variety of factors that affect what type of documentation—and how much of it—you will need to provide. Some of these factors include the size of the loan and your current financial situation. One of the most important factors is the type of financing you will be applying for. Make sure you know what documentation will be required for the loans you are applying for.
As a consumer, if you have a job, a consistent bank balance, and a decent credit score, you can usually work with a number of financial institutions and receive financing for a car. However, your cash-flow positive, profitable business with the same credit score can easily be turned down for a much smaller loan amount. Why is this?
You’ve made the commitment, and now you’re ready to start your own business. How much cash will you need? Should you invest directly in the business or fund a loan? What are the tax consequences? Answering these questions is important, and by following these steps you should be on your way to a workable plan.
The credit score for your business is created and compiled in a manner similar to your personal score. Using your business’s Taxpayer Identification Number (TIN), vendors and other entities that extend your business credit will report the timeliness of your payments to the major credit reporting agencies. If you pay your obligations on time, your credit score will move higher. Become delinquent or default and your score will move lower.
You’ve realized that your business needs more capital to sustain operations and fuel future growth. Where do you start? If the bank turns you down, what are your options?
This summary is a guide to the different types of loans and funding programs available to businesses. You should research those that seem like they might apply to your business, paying attention to costs, term, the impact to your credit rating, and the application process.
You receive a phone call, open an email, hear from a friend-of-a-friend about some company that is providing business loans at fantastic rates. You can’t help but wonder, is this the source of working capital you’ve been searching for, or the start of a very painful learning experience? What should you do when you come into contact with a lender with whom you have no name recognition or prior experience? Here are some warning signs to look for to identify a bad lender.
Demand for business loans remains near an all-time high. As such, lenders and other types of funding providers have as much business as they can handle and can be more selective on which businesses they fund.
For the past several years, borrowers have had the luxury of weeding out lenders. Now the lenders are in a position to weed out the borrowers. For William Morgenstein, president of Marquesa Funding, a few simple questions can immediately eliminate a potential borrower. “The most obvious is asking someone what his or her credit rating is,” he said. “You’ll ask and they won’t know or will tell you something vague. A good broker will sense something that isn’t forthcoming and will abandon the application almost immediately.”
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