Most businesses, at some point in their lifetime, are going to need outside financing to help grow their business. After all, it takes money to make money. As a “proactive advisor,” you can
help your clients when this time comes by helping them prepare their loan package and discuss all their potential loan options -- making sure they find the best option for their business.
But, you can help your clients now, before the thought of a small business financing has even entered their minds. How? By knowing the facts and figures that matter most to the loan application. Helping them monitor these documents and details, emphasizing their importance, will help them tremendously down the road. Now that’s proactive advising.
To jump right in, here are the elements of the loan application that matter most:
Revenue and Profitability. A business’s revenue is going to matter throughout the loan application as lenders want to see that the business owner can afford the loan amount they’ve asked for. Generally speaking, it is going to be hard for your clients to qualify for a loan larger than 8 to 15% of their annual revenue, unless they’re looking at a startup loan. If they’ve whispered dreams of taking out a large loan to fuel growth, make sure they understand they need to get revenue up in order to make it happen. But, if your client has six figures or more in annual revenue, they should have some loan options available to them. Also important, of course, is the profitability of the business. Even if the business is doing millions in sales each year, if they aren’t profitable, that’s going to make lenders nervous. It’s better to help your clients reach a point of profitability before applying for a loan.
Cash Flow. How good is your client at managing their cash? This is going to be a question that lenders want an answer to. They’re going to look at this through various lenses. First, what is their average bank balance? Do they keep enough cash on hand to even afford this loan payment? Make sure your clients keep healthy balances and don’t have too many NSFs. Some will also want to see a statement of cash flows, so make sure you are consistently running this report with your clients, helping them get to a point where it always looks pristine.
Financial History. Your client’s past is going to be very important to lenders. For example, has your client had a bankruptcy? If so, some lenders are going to want them to be a few years out from it. They’ll also look for things like foreclosures, judgements or suits, or collections proceedings. Make sure your clients understand the implications of these past occurrences, but understand it isn’t necessarily a dealbreaker! How do lenders find out this information? The borrower’s personal credit report. And, that leads us to the next element.
Credit. The personal credit score and report is incredibly important in the business loan process. Lenders assume the business owner will pay the loan back (which is correct), so they want to know if this business owner has a good history of paying debt. Clients with a 700+ credit score should have plenty of loan options, but there are options for those still struggling with credit. It helps if their revenues are strong! Advise your clients to pull their credit report before applying to see if there is any misinformation on the report. They don’t want lenders seeing something that isn’t even accurate. If they see something that isn’t correct, have them contact the bureaus to get it removed. Start applications once it has been corrected.
Helping your clients with each of these elements will increase their chances of finding funding substantially. Have you tried helping clients with this in the past? Any advice? Let us know in the comments!
Meredith Wood is the Editor-in-Chief at Fundera, an online marketplace for small business loans that matches business owners with the best funding providers for their business. Prior to Fundera, Meredith was the CCO at Funding Gates. Meredith is a resident Finance Advisor on American Express OPEN Forum and an avid business writer. Her advice consistently appears on such sites as Yahoo!, Fox Business, Amex OPEN, AllBusiness, and many more. If you want to help your clients find financing, sign up for the Fundera Advisor Program.