Want Business Capital? Here's How

We have heard ad nauseam about banks and other financial institutions not lending to small businesses. The talk is that they have raised their lending standards requiring better qualifications for those they will consider while cutting out (laughing at) those who just do not measure up.

Is this fair? That can be debated as I personally think standards are where they should have been all along. If standards were where they are now, we may not have gotten into this financial mess in the first place.

Regardless of what is fair and what is not and what each of us might think about the subject - the bottom line is that standards have been raised and if you or your company needs capital to either start or grow your business - you too have to raise your standards.

How you might ask? Simple. Meet the new guidelines.

Banks are in the lending business. They want to make loans as that is how they make the bulk of their revenue (besides fees - but, if they are not making loans - they are also not collecting fees).

Lending is how they will survive the run long when the government bailouts dry up. But for now, the problem comes from the fact that everyone, and I mean everyone, is securitizing the banks. They are under such an intense microscope that they have no real choice but to stick by these new standards or be forced to shutter, be taken over by the FDIC or competitors or lose access to these bailout funds.

Thus, for the time being - these new standards will stay.

So, how can you measure up to these new requirements? Again, simple. Banks want to see two things: Your ability to repay the loans (e.g. to make monthly payments) and your willingness to repay the facility (e.g. your credit history).

These are the things you have to work on, to improve upon or to raise up to these new guidelines - it is really that simple.

I constantly see companies (new and old) who realize decent amounts of revenue - enough at least to support new lending. But, the credit history of the main business owner is so bad that even dishonest lenders run the opposite way. They too understand that potential borrowers with bad credit are a waste of their time - that should tell you something.

Other businesses I have seen have the opposite problem - decent credit but no way to make the monthly payments for a loan. If you cannot pay it back - you will not get it in the first place - banks and other lenders want to be repaid.

And lastly, the vast majority of these companies I see have both problems.

Regardless of which category you or your business may fall into - these are the things you have to fix if you want start-up or growth capital for your business.

If you are not generating revenues - find a way - even outside income (banks don't care where the money is coming from as long as it is there). And, it has to be there at time of application - not from proforma statements or pie in the sky estimates of what you think tomorrow will bring. It just has to be there now - if not, make it happen; find a way - that is being a true entrepreneur!

If your credit score is below a 700 + FICO - fix it! Make your current payments on time or catch up on late payments. Clear negative items. And, quit maxing out the credit you do have. Reduce current debt obligations - especially unsecured and revolving debt - showing your ability to manage the credit you do have. You would not believe how receptive financial institutions will be if you have an excellent credit score. If you can demonstrate that you will put repaying your creditors above all else - these financial lenders will take more of a chance on you and your business.

You can even consolidate your debt (even your unsecured debt including credit card balances) into one, monthly affordable payment - freeing up current cash flow while improving your credit history - the best of both worlds.

Doing the items above is not easy or fast (besides the debt consolidation) - but you simply have two choices. You can apply for credit and get turned down - wasting both time and money and never getting anywhere or you can take that same amount of time and money - improve your creditworthiness - and move forward improving in realizing your financial dreams.

The game of lending has changed. I don't know if the days of the quick, easy loans are over - they may come back when the economy recovers or they may not - but for now - the game has changed and you must change with it if you want to get the capital you need to start, grow and succeed in business. If financial lenders are declining your request - find out why and fix the issues. You CAN take that to the bank.

advertisement

Copyright 2007 - 2012 - Business Money Today - All rights reserved