A financial approval can be a moving target
Equipment financing in all markets is always a slightly moving target. Strict credit rules are constantly changing because underwriters and credit teams are under pressure to make the right decision; their jobs depend on it. The squeeze at one end for lenders is to minimize bad debt by avoiding financing customers who end up in default. On the other hand, lenders and investors need to make a profit, and federal regulations require them to approve a certain number of loans. The scenario is frustrating for both the client and the financial agent, but we can confirm that investors continue to lend and approvals are much higher than last year.
What are some common approval guidelines?
Full financial disclosure is best to get a quick decision. Knowing what your credit looks like, assets, liabilities, and how your business is performing will provide the underwriter with the complete picture, allowing you to offer the best possible terms. Hiding bad debt almost always comes to light and simply delays or ends the appraisal process, so lay all your cards on the table. Explain specific losses or why certain bills were not paid.
Check your own credit score or Dun & Bradstreet report; if something negative comes up, work to correct or repair it before completing an application; there are many agencies that help correct or fix credit quickly. Rectify the problem and have proof that it has been fixed; this step will show the subscriber that their credit is being managed correctly.
If you’re a smaller business, be prepared to PG (personally guarantee) your financing. It is a general guarantee with your assets as pledge that you will make your payments. If you don’t, then like any creditor, they will seize or take your assets to pay off the debt. Years ago, small businesses weren’t regularly asked to do PGs, but now they are. Lenders feel that if you don’t “believe” in your business and aren’t prepared to stand behind it, why should they? Marginal note; Oftentimes, people with high net worth and low cash flow feel like they should get approved based on their worth. Often this is not the case, lenders are not in the business of filing lawsuits and chasing assets for repayment, often resulting in a loss for them anyway. They want to lend to companies that have a high probability of paying them back through their normal business operations.
Finally, write a brief summary of yourself, your business, and why the funding request will benefit your business. Whether you’re the seller or the borrower, adding a human touch to your finance app goes way beyond what many people realize. Describe how long you’ve been in business, who owns it with a brief background, what products you sell, and the areas or markets you serve, and describe opportunities. This is how I would describe the business in a two-minute introduction to a stranger.
This market requires knowledge and flexibility on both sides of the transaction; It’s not what loans were five years ago, but it will be much better for all of us in the long run. Remember, you are borrowing money from a stranger who must be comfortable with his or her ability and willingness to pay it back.