Equipment financing in all markets is always a slightly shifting goal. 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 restriction at one extreme for lenders is to minimize bad debts by avoiding financing clients who end up in default. On the other hand, lenders and investors must make a profit and federal regulations require that they approve a certain amount of loans. The scenario is frustrating for both the client and the broker, but we can confirm that investors are still lending and approvals are much higher than last year.
What are some common approval guidelines?
Full financial disclosure is best for making a quick decision. Knowing what your credit, assets, liabilities and how your business is performing will provide the subscriber with a complete picture, allowing you to offer the best possible terms. Hiding bad debt almost always comes to light and simply delays or ends the evaluation process, so put 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 appears, 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 resolved; This step will show the insurer that your credit is being managed correctly.
If you are a smaller business, prepare to PG (personally guarantee) your finances. It is a general guarantee with your assets as a guarantee that you will make your payments. If you don’t, then like any creditor, they will leverage or take your assets to pay off the debt. Years ago, small businesses were not regularly asked to PG, but now they are. Lenders feel that if you don’t “believe” in their business and are not prepared to back it up, then why should they? Marginal note; Often times, people with high net worth and poor cash flow feel like they should be approved based on their worth. Often this is not the case, lenders are not in the business of filing lawsuits and pursuing assets for repayment, often resulting in a loss for them anyway. They want to make loans 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 applying for financing will benefit your business. Whether you are the provider or the borrower, putting a human touch to the financial application goes way beyond what many people believe. Describe the length of time in business, who the owners are with a short history, what products you sell, and areas or markets you serve, and describe the opportunities. This is how I would describe the business in a two minute presentation to a stranger.
This market requires awareness and flexibility on both sides of the transaction; It is not what the loan was five years ago, but it will be much better for everyone in the long run. Remember, you are borrowing money from a stranger who must be comfortable with your ability and willingness to pay you back.