Equipment financing in all markets is always a slightly changing objective. Strict credit rules are constantly changing because underwriters and credit teams are under pressure to make the right choice; 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 for getting a quick decision. Knowing what your credit, assets, liabilities look like, and how your business is performing will give the underwriter a complete picture, allowing you to offer the best possible terms. Hiding bad debts almost always comes up and simply delays or ends the appraisal process, so put all your cards on the table. Explain specific losses or why certain invoices 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 fixed; this step will show the subscriber that their credit is being managed correctly.
If you are a smaller company, be prepared to PG (personally guarantee) your financing. It is a general guarantee with your assets as a 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 PG, but now they are. Lenders feel that if you don’t “believe” in your business and aren’t prepared to back it up, why should they? Marginal note; Often people with high net worth and low cash flow feel they should get approved based on their value. 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 repaying them through their normal business operations.
Finally, write a brief summary of you, 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. Please describe how long you have been in business, who the owners are with a brief background, what products you sell and the areas or markets you serve, and describe the opportunities. This is how I would describe the business in a two minute introduction to an outsider.
This market requires knowledge and flexibility on both sides of the transaction; It’s not what lending was like 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 their ability and willingness to pay it back.
