At Dealstruck, our long-term goal is to graduate our borrowers into a traditional banking relationship over time. We accomplish this by providing an affordable and practical small business financing facility to help facilitate growth. Our financing allows you to capitalize on opportunities short-term while building business credit in the long-term.
When it comes to becoming bankable, however, we can only take you so far. While our underwriting standards are fairly flexible, banks don’t have much flexibility at all. They have credit policies that require certain characteristics of a business borrower, and if you don’t meet those, you will likely be denied credit. That’s why you need to get prepared for your next bank credit application.
I spent years underwriting small business loans at a bank, and I have some tips that I think would be helpful in making your next bank credit application a success.
Tips for Making Your Bank Loan Application a Success
File Taxes Early – If possible, you should apply for a bank loan just after the end of your fiscal year. Don’t wait to file your tax return or request an extension – file it as soon as you have the information you need. This allows you to provide the bank with three years of tax returns ending with your most recent year-end. Why does this help? First, you may avoid having to provide interim financial statements, and second, you are providing up-to-date financial information that is considered reliable to the underwriter.
Know Your Financials – Be prepared to answer detailed questions about your tax returns and financial statements. Commercial loan underwriters are trained in financial analysis, and they use spreadsheet software to analyze trends and ratios over a period of three years or more. They will ask very specific questions about the reasons for changes in your business financial performance, whether those changes are positive or negative. If you don’t have solid answers to the questions, you’ll give the underwriter reason to question your management of the company. I strongly recommend having your CPA do a similar analysis prior to applying so they can assist you in being prepared for these questions.
Have Your Books In Order – If looking at financial statements aren’t your strong suit, bring in your CPA to take a look at what you plan on submitting to the bank. Things that may not be obvious to you will jump right off the page for an underwriter – underwriters look at hundreds of financial statements each year, so they pick up on these things quickly. Some obvious examples are negative assets or liabilities on the balance sheet and unclassified expenses in the income statement.
Know What’s on Your Personal Credit Report – Banks are pretty strict about personal credit, and often require a FICO score of 700 or better. Although most credit monitoring services don’t provide a true FICO score, their credit score models provide a close approximation. Even if that score is not completely accurate, it’s worth subscribing to a credit monitoring service to see what’s on your report. Make sure you clear collection accounts, charge-offs, and other derogatory items. Keep your revolving credit utilization low and never pay late.
Key take-away: Properly acquiring financing from a bank takes planning, preparation, and time – it’s a good idea to implement these tips before your business’s financing needs become significant. Not only can these good habits help you get the capital you need, but they can result in a better rate, saving you overhead in the long run. If I can ever help you prepare for financing, let me know.