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Applying For a Business Loan – Cash Flow, Collateral, Credit Score

It is quite a process when you apply for a business loan at the bank or credit union. A lot of business owners think that financial institutions are asking for the world when they try to apply for a loan. Some people still remember their mortgage application process few years ago when “no income” and “no documents” loans were the norm. Those usually feel frustrated when they are applying for a business loan today. I’ll give you a few tips of advice about what you should know and look for when applying for a business loan.First of all you have to put yourself in a financial institution’s position for a minute. Bank or credit union is in the business of lending not investing, which means none of the financial institutions will be excited about your start up or business that’s been around for less than three years. You do need track record of stability and historical cash flow to prove that business does have and will have the ability to repay the loan. This leads us to the most important factor in this process – cash flow.Cash flow and debt service coverage. Positive cash flow, profit, surplus whatever you call it is the most significant aspect of your loan approval process. If your business is able to demonstrate last three years of profit on paper 50% of the approval is done. Pay attention that I said it has to be on paper – federal tax returns, accountant or CPA reviewed or in some cases audited financial statements are what counts. Don’t try to give a story, “oh, my business is making money but I don’t show it on paper” or “I don’t have my federal tax returns and I am definitely not getting reviewed or audited financials”. Those two statements will get you a quick decline. To measure positive cash flow and repayment ability financial institutions use a ratio called debt service coverage (DSC). Business needs to show at least two to three years of 1.25x DSC. DSC is calculated as followed annual net operating income (NOI) plus depreciation, amortization and interest divided by total business annual debt service. For example if business NOI wit add backs is $375,000 and the total amount to make payments on business debts is $265,000 the DSC will be 1.42X which is good. There are also plenty of other ratios and test methods but DSC tends to be the key when it comes to small business lending.Collateral can be as important as cash flow and DSC. In most cases even if you show the last three years of DSC greater than 1.25X but you lack collateral the loan can get declined. Usually when bank says collateral they mean real estate or industrial equipment and machinery. Business good will, account receivables, contract assignment, inventory or office equipment is not the most desirable collateral. Strong cash flow always has to be followed by strong collateral. On occasion you might find some lenders that will grant you a loan with the lack of cash flow but strong collateral and low LTV. The business might be showing one or two years of losses but if LTV is at 40% or less some lenders might approve the loan for a business that’s been in existence for a while. Typical LTVs are up to 80% on owner occupied real estate and up to 75% on investment real estate. Vacant land for which loans are scarce these days can be financed for up to 50% LTV. On brand new industrial machinery and equipment you can expect up to 80% LTV, on used up to 60%.Personal guaranty. Requirement of owners’ personal guarantees is expected for most of the privately owned companies. If your business is generating $50 million or less in annual revenue most of the time business owners (anyone owning 20% or more of the business) will have to pledge personal unlimited and unconditional guaranties. For a public company or business generating close to $100 million in revenue personal guarantees can be limited or completely waved. Once in awhile an owner of newly established company makes the statement, “I am not providing my personal guaranty, that’s why I’ve created corporation or LLC” Those get quick answer “No”. There is just no way around it if you want the loan.Business credit history is one of the urban myths. Usually newer businesses are very concerned about their business credit history. Let me tell you that this is probably one of the last things bank is concerned about when you apply for a business loan. Your personal credit history is even more important than business credit history. And believe in business lending “no income verification and no document” loans do not exist so don’t sweat about your business credit score.As part of the due diligence lender will check for pending litigations, outstanding judgments, collections or tax liens. None of that better show up because even if you have strong cash flow and solid collateral the loan will get declined. In case you are not applying or applied and got denied with your current bank don’t bad mouth them and have a good explanation of why you are not applying with them or why you got declined.To summarize it all as long as you have strong cash flow and collateral you should be OK. If you are not getting what you need with your bank try others. There are tens of thousands of banks and credit unions in United States and you can find the list of your local financial institutions by visiting FDIC or NCUA websites. Try not to use brokers unless you have no time to shop around because all brokers do is the same as you would do – just call around from one bank to another. Some financial institutions are even shying away from broker solicited loan requests because they don’t have a chance to learn more about the borrower themselves. In these challenging economy times a lot of businesses tend to have more success when applying for loans at their local community banks or credit unions.

SBA Small Business Loans – Know How They Work

SBA small business loans are offered to start-up businesses by the Small Business Administration or the SBA, in order to provide them financial assistance. The SBA is a United States government agency offering loans to small business owners who do not have the eligibility to avail loans from conventional lending sources. These loans are designed with the sole aim of supporting the establishment and growth of small enterprises to boost the financial condition of the nation. However, it is important to understand how the SBA works in order to benefit from the various loan programs offered by them.

The Small Business Administration does not provide loans directly to the borrowers. Instead, they work in partnership with various private-sector lenders, community development organizations and micro-lending institutions to provide these loans. In the lending process, they serve the purpose of setting the terms and conditions and regulating the loans.

Small businesses are more in need of loans than the established ones. The simple reason for this being the fact that they are starting a new journey and lack adequate money to make investments. Hence, it would be extremely difficult for them to secure loans at high interest rates. The SBA, unlike banks and other conventional lending sources provides loans to business owners at lower interest rates, making it easier for them to repay the loans.

Unlike the banks, the SBA does not check your credit records before providing the loans. This means, you can avail these loans even with poor credit records that include bankruptcy, arrears, insolvency, IVA and more.

In order to secure SBA loans, you would need to present important documents to both the SBA and the bank providing the loan. Apart from the necessary documents, you would also need to present at the bank all the SBA requirements such as the SBA loan application, a personal financial statement, a good business plan, 3 years of business financial statements, 3 years of federal business tax returns, information about all owners and detailed information on how the business would benefit from the loan. These are only a few of the documents that might be required by the bank and the SBA. You might need to present other paperwork as well.

You can conveniently obtain these loans even if you do not possess properties that can be kept as collateral. SBA provides you assistance in this case by acting as your guarantor. The SBA guarantee also provides the banks the assurance that the loan would be repaid on time.

Obtaining SBA small business loans is a quick process. They are almost like ready-made cash that can be secured as soon as you apply for them.

These loans are categorized into various types such as the SBA 7(a), SBA 504 and SBA Express and Patriot loans in order to meet the requirements of different businesses. However, it must be kept in mind that all the banks do not offer the same SBA loan programs. The programs might differ and so the loan requirements based on the individual terms and policies of the banks.
Thus, the SBA small business loans can help anyone having a lucrative business idea and the courage to start their own business.

Credit Worries No Hurdles In Bad Credit Women Business Loans

Women are now integral part of the business world. Therefore a loan has become a must for any business women if she wishes to advance her business interests. But in the process of doing business, women are bound to come under financial constraints and payment defaults may happen as a regular feature. So no one should ignore financial help to business women if she has a bad credit, as a loan only can improve her financial health and in turn can enable her in paying debts. Bad credit women business loans are crafted especially for business women having bad credit. A business woman can make improvements in her credit score as she pays off the loan installments of bad credit women business loans. With the help of the loan amount she can buy a business or pay off various bills related to raw material or equipment purchase or she can clear debts.Bad credit happens to business women when she regularly defaults on payments. So her credit score on FICO range of 300 to 850 falls below 600 indicating that she may be a risk for the lender in offering a loan. But bad credit of a business woman can be countered effectively. The best way to do so is that the business woman takes a secured bad credit women business loans. for providing the secured loan amount the lender will take any of the business woman’s property like home as collateral. This way she can borrow greater amount at lower interest rate. another advantage is that the business woman going through a bad phase can easily pay back the loan as secured bad credit women business loans are provide for a larger repayment duration of 5 to 30 years. This means her monthly monetary outgo towards installments gets reduce and she saves money for other business purposes.If smaller amount is what a business woman needs than unsecured bad credit women business loans is the right option. For her there are no risks as none of her property is involved in the loan as collateral. But lender would like to have a good look into the repaying capacity through income and past records of bank statements. The unsecured loan however comes at slightly higher interest rate. The loan amount is kept smaller and repaying duration also is shorter.But before availing the loan the business women should know that there are special concessions being given by lenders for them. Business women should look around for these concessions so that their businesses can benefit more from them.Also ensure that you have made an extensive comparison of different bad credit women business loans on offer from as many lenders. The lenders can be located on internet. See which lender has suitable offer for your type of business. Apply online to the lender for fast processing and approval of the loan amount.Surely business women get maximum benefits on availing bad credit women business loans. The installments of the loan should regularly be cleared for escaping debts. Remember that with each clearing of the installments your credit score improves and that makes the loan availing a lot easier in future.