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How Lending Decisions Are Made
Building business credit is an important aspect of any enterprise and the more you know about this, the more you improve your chances for securing it.
5 Factors We Use To Assist Us in Making Lending Decisions
Factor #1: Character – how will the bank see you as a borrower? Your personal credit history provides us with the best clue about your character and we research how well you have managed it in the past. What if you don’t have a personal credit history? We will oftentimes substitute your business experience, personal references, and work history. However, if you have a strong credit history, this proves to us that you have the discipline and willingness to repay your past debts as well as any future obligations.
Factor #2: Business credit – Biz4Loans employs a credit-reporting agency to research your payment history with trade suppliers as well as other business obligations. We also research your payment record with other with other financial institutions in order to see if you are current with them as well.
Factor #3: Cash flow – we are a cash flow lender which means we examine your company’s cash flow as the primary source of repayment when we lend you money. How is that cash flow computed? Cash flow is calculated by a company’s net profit plus its non-cash expenses, amortization and depreciation included. Our general rule of thumb is that your company must generate $1.50 in cash flow for every $1 in total loan payments.
Factor #4: Capacity – every lender wants to know how you would intend to pay off your loan if there was a downturn in your business that seriously hindered your cash flow. Will you be able to borrow against your other assets or convert them to cash? This could include assets such as certificates of deposit, real estate holdings, savings, or stocks that could be liquidated quickly.
Factor #5: Collateral – Biz4Loans is in the business of brokering secured and unsecured loans. With a secured loan, you pledge certain collateral such as business assets (accounts receivable, equipment, inventory, real estate, etc.), certificates of deposit, or stocks.
The following are important questions you should consider before you apply for credit:
- Are you the principal decision-maker?
- Can your business generate a minimum of $1.50 in cash flow for every $1 you pay towards your expenses?
- Do you have a minimum of five additional sources of credit?
- Has your company been profitable during the past two years?
- Have you been in business a minimum of three years?
- Have you consistently paid your business and personal bills on time?
- Have you filed for bankruptcy within the past 10 years?
- Is there a judgment, lawsuit, or tax lien pending against you or your business?