Applying For a Business Loan – Cash Flow, Collateral, Credit Score

It is quite a process when you apply for a business loan at the bank or credit union. A lot of business owners think that financial institutions are asking for the world when they try to apply for a loan. Some people still remember their mortgage application process few years ago when “no income” and “no documents” loans were the norm. Those usually feel frustrated when they are applying for a business loan today. I’ll give you a few tips of advice about what you should know and look for when applying for a business loan.

First of all you have to put yourself in a financial institution’s position for a minute. Bank or credit union is in the business of lending not investing, which means none of the financial institutions will be excited about your start up or business that’s been around for less than three years. You do need track record of stability and historical cash flow to prove that business does have and will have the ability to repay the loan. This leads us to the most important factor in this process – cash flow.

Cash flow and debt service coverage. Positive cash flow, profit, surplus whatever you call it is the most significant aspect of your loan approval process. If your business is able to demonstrate last three years of profit on paper 50% of the approval is done. Pay attention that I said it has to be on paper – federal tax returns, accountant or CPA reviewed or in some cases audited financial statements are what counts. Don’t try to give a story, “oh, my business is making money but I don’t show it on paper” or “I don’t have my federal tax returns and I am definitely not getting reviewed or audited financials”. Those two statements will get you a quick decline. To measure positive cash flow and repayment ability financial institutions use a ratio called debt service coverage (DSC). Business needs to show at least two to three years of 1.25x DSC. DSC is calculated as followed annual net operating income (NOI) plus depreciation, amortization and interest divided by total business annual debt service. For example if business NOI wit add backs is $375,000 and the total amount to make payments on business debts is $265,000 the DSC will be 1.42X which is good. There are also plenty of other ratios and test methods but DSC tends to be the key when it comes to small business lending.

Collateral can be as important as cash flow and DSC. In most cases even if you show the last three years of DSC greater than 1.25X but you lack collateral the loan can get declined. Usually when bank says collateral they mean real estate or industrial equipment and machinery. Business good will, account receivables, contract assignment, inventory or office equipment is not the most desirable collateral. Strong cash flow always has to be followed by strong collateral. On occasion you might find some lenders that will grant you a loan with the lack of cash flow but strong collateral and low LTV. The business might be showing one or two years of losses but if LTV is at 40% or less some lenders might approve the loan for a business that’s been in existence for a while. Typical LTVs are up to 80% on owner occupied real estate and up to 75% on investment real estate. Vacant land for which loans are scarce these days can be financed for up to 50% LTV. On brand new industrial machinery and equipment you can expect up to 80% LTV, on used up to 60%.

Personal guaranty. Requirement of owners’ personal guarantees is expected for most of the privately owned companies. If your business is generating $50 million or less in annual revenue most of the time business owners (anyone owning 20% or more of the business) will have to pledge personal unlimited and unconditional guaranties. For a public company or business generating close to $100 million in revenue personal guarantees can be limited or completely waved. Once in awhile an owner of newly established company makes the statement, “I am not providing my personal guaranty, that’s why I’ve created corporation or LLC” Those get quick answer “No”. There is just no way around it if you want the loan.

Business credit history is one of the urban myths. Usually newer businesses are very concerned about their business credit history. Let me tell you that this is probably one of the last things bank is concerned about when you apply for a business loan. Your personal credit history is even more important than business credit history. And believe in business lending “no income verification and no document” loans do not exist so don’t sweat about your business credit score.

As part of the due diligence lender will check for pending litigations, outstanding judgments, collections or tax liens. None of that better show up because even if you have strong cash flow and solid collateral the loan will get declined. In case you are not applying or applied and got denied with your current bank don’t bad mouth them and have a good explanation of why you are not applying with them or why you got declined.

To summarize it all as long as you have strong cash flow and collateral you should be OK. If you are not getting what you need with your bank try others. There are tens of thousands of banks and credit unions in United States and you can find the list of your local financial institutions by visiting FDIC or NCUA websites. Try not to use brokers unless you have no time to shop around because all brokers do is the same as you would do – just call around from one bank to another. Some financial institutions are even shying away from broker solicited loan requests because they don’t have a chance to learn more about the borrower themselves. In these challenging economy times a lot of businesses tend to have more success when applying for loans at their local community banks or credit unions.

Business Success Values – 4 Secrets to Guard Your Priorities

Business success values are generally determined by the successful results of working smart, insightful strategies and systems, and common sense. All in efforts to deter business failure. Business failure happens to about 95% in the first year of those starting a small business. While business growth declines, business achievement seems an impossibility, and thinking successful business ownership is just for those investing thousands of dollars, the young, struggling Entrepreneur can be encouraged to know that he or she can build a successful, financial enterprise…without thousands of dollars!

Although financial investments are priority to any business adventure, there is more to business success than mere financial gain, if you want repeating customers. Keeping your priorities in check is not as easy as people make it sound. However, whether starting your own business or partnered with someone for a business startup, guarding your priorities, with successful results, happen when business success values are strengthen through Self-Mastery, Taking Action, and building Positive Relationships. When these strengths are cultivated and priorities stay aligned with your goals, you will be able to utilize these four secrets to guard your priorities.

1. Value of Throwing Off Discouragement

You most likely know of people who are marketing Online in an Internet business, offers business advice or strategies, or owns several business companies. It can be very discouraging to a business owner and Entrepreneur to see how all the federal administration changes are affecting the structure and finality of small businesses and their marketing success..not to mention the financial “bottom line.” Discouragement is cousin to apathy and mediocrity, which can both lead you to fear what lies ahead for you and your business. Once you determine your fear, business success values can help you throw off your discouragement. What do you fear most?

2. Value of Mastering Fear

What you fear most is not the end of the world, my friend. There is still hope for you in this changing world and economy. No need to worry about the success results of marketing and marketing value. The value lies in conquering your fears. Mastering your fears is a secret that many fail to discover and cultivate. Although you may have heard that fear is False Evidence Appearing Real, which has its merit, fear is mainly about mindset and perspective. Once you have master your fear, you can overcome procrastination. What are some fears that keep you procrastinating from what you know you need to do?

3. Value of Overcoming Procrastination

Business success values can not strive in the arena of procrastination. Business success, business achievement, whatever you choose to call it, can not flourish if you keep procrastinating the importance of business ownership, let alone…your life! When it pertains to business success values and priorities, procrastination is easy to do. Especially, when you do not know your “why,” don not have a mission, or do not have a specific action plan for your business. Like “cousin” discouragement to “apathy,” procrastination is the offspring of fear. Priorities take a back seat when procrastination is driving. Once you can overcome procrastination, your business success values will help you to draw freely upon your imagination. Financially speaking, where do you imagine you will be 5 years from now?

4. Value of Drawing Freely Upon Your Imagination

Drawing freely upon my imagination is something I call a privilege, a gratitude for self-perspective and self-influence. I am thankful God has granted me an imagination. No one else can control this aspect of my thoughts. I own them. When you imagine yourself being successful, you make what you imagine, happen. Imagination is a powerful experience of the human mind that can help determine successful results with priorities and business success values. The secret of drawing freely upon your imagination takes time to master and is a process.

As children, imagination was an intricate part of our daily lives. We allowed “grown-ups” to convince that we could not do this or that. When we grew up, we still believed what we were taught. I say, get back to your imagination! Dream, dream, and dream some more! Drawing freely upon your imagination will help you throw off your discouragement, master your fears, overcome procrastination, and help you prioritize business success values.

Do not be discouraged when you experience fear. Fear is a natural process of life. Yet, do not let it “rule” over you and/or control you. Be Master over it! I personally have found this to be the most challenging in my own life until I realized I have control over my own thoughts and fears. I now can live a life of business success values that have giving me the secrets to guard my priorities. If you need help with this in your own life and business, ask for help. I can help you with your business success values where you will create your own success story!

Take Your Business Networking to a New Level

For any business, effective networking is an essential component to success. Today, though, the landscape of business networking has changed dramatically. No longer does business networking exclusively involve standing in a crowded room of people, meeting and greeting with total strangers, and exchanging numerous business cards. While such traditional networking is still valid and effective, e-networking done via business social networking sites is just as valuable.

Regardless of what anyone thinks about social networking sites, the fact is that they are here to stay. Sure, they’ll evolve over the years and will likely look very different than they do today, but ultimately they’ll still exist. And while purely “social” social networking sites can have a business aspect to them, it’s important for business owners, executives, and managers to have a strong presence on the tried and true business networking sites (example: LinkedIn).

Why? Because your clients, customers, colleagues, and others look to business networking sites for evidence of your character. For example, when a prospect is thinking about doing business with you, he or she will likely do a social media search for you. Never before did average people have the ability to research anyone or any company they wanted. While in the past background checks were expensive and time-consuming, these days a few mouse clicks and keystrokes can pull up a goldmine of information. That’s why you and your company need to be on business networking sites…and you need to be using the e-networking sites effectively.

The following suggestions will help you become a savvy e-networker with a positive online presence.

• Don’t be a contact collector; be a contact cultivator.

The goal of any networking endeavor is to build relationships, not just to collect business cards. E-networking is no different. If you’ve been on any business networking sites, you’ve likely seen people with 500+ connections. At first you may think, “Wow, that person sure knows a lot of people.” But does he or she really know those connections? Or is this person just collecting contacts?

Rather than accepting and sending invitations to anyone, be mindful of whom you connect with. When you do make a connection with someone, look over his or her profile and then add a personal note to the person where you indicate a shared interest, club, affiliation, etc. For example, you could respond to someone by writing, “I see you attended Northwestern University (or are a member of the Miami Business Association, or have a pet beagle…). I have a similar interest in that I (also attended Northwestern…am a member of the Tulsa Business Association…. have a dog named Snoopy…etc.).” You get the idea. Find a shared interest to build upon that will make you stand out and open the lines for real communication later.

• Have a clear purpose.

Many people think they’re going to get business from being on social media sites. While you can get business from your online activities, this shouldn’t be your ultimate purpose. Rather, your purpose should be to make people aware of who you are by sharing your expertise.

Any business networking site is a place for you to give, not just to get. So to get business from your e-networking activities, you have to contribute meaningful content. You can find many groups to belong to that have strong conversations going. If you post something in the discussion that’s smart and useful (good content), then chances are someone will ask to connect with you. Now you have more people to share your message with.

Other examples of good content are asking thought-provoking questions, posting a motivational quote, and sharing a business tip. No matter what you post, if you get a reply, acknowledge the person for their feedback or contribution. Just as you can’t take people for granted in the brick and mortar world, you can’t take them for granted in the virtual world either. Everyone who reacts to your content is a potential relationship and you need to treat them as such.

When you’re replying to a question someone else poses, try to answer in the early part of the conversation rather than after 100 others have already replied. You want your answer to be in that first page of results. That way anyone who replies after you sees your photo and business information every time. With that said, pay close attention to what the question is and don’t answer anything capriciously. Always remember that your reply is posted forever.

• Add some personal flair to your profile.

Even though this is business, it’s okay to put some personal flair to your profile. After all, no one is all business all the time. Chances are you have some interesting hobbies or other areas of your life that people find intriguing. For example, maybe you collect antique cars, breed prize-winning poodles, tend a vineyard in your backyard, or have the city’s largest yo-yo collection. These are interesting tidbits of yourself that you can weave into your profile to make you appear more “real.”

Additionally, look at the tools and widgets the business networking sites make available to you and use them. You can do such things as post your reading list, link your blog, upload your Twitter feed, and many others. People can get to know you by these additional applications. Even better, they’re very user-friendly and easy to integrate into your business networking persona.

A New Twist on an Old Tool

We are currently in the biggest social media experiment in the world. Those who embrace business e-networking now are essentially the pioneers who will shape how this tool gets implemented and how it evolves. As you move forward, however, remember that your involvement with business networking sites should be just one small aspect of your business building efforts; it’s definitely not an end-all approach for getting business. Essentially, when you use today’s business e-networking tools effectively, you’ll have one more way to connect with clients and prospects so you can build your business and boost your bottom line.