Small Business Lending Assistance from Peace of Mind Financing
Your Personal Loan Officer!
With more than 20 years of experience 1,300 entrepreneur consultations, Marcus has a combination of underwriting and direct lending experience that very few can claim. His interpersonal relationships with lenders throughout Colorado include traditional banking institutions, credit unions, not-for-profit/CDFI’s, government-sponsored programs, as well as private lenders who are interested in social and community investment opportunities.
Marcus never accepts referral fees from lenders – a practice which often results in an increased interest rate to the borrower. This helps ensure his clients are receiving the best-available financial options, without back-end personal financial motives.
During the educational process of identifying the most appropriate – and most affordable – financing resource for their specific situation, small business clients receive personalized details about the common lender review areas – known as the “5 C’s of Lending” – which can improve their chances for approval….while gaining protection from an increasing level of online predatory lenders who take advantage of those looking for “easy money”.
Understanding the 5 C’s:
Capacity to repay is the most critical of the five factors, since it is the primary source of repayment – CASH FLOW. The lender will want to know exactly how you intend to repay the loan. The lender will first consider the HISTORICAL cash flow of the business, then the analysis of cash flow expectations after a new loan is issued, and the overall probability of full loan repayment. Your payment history with existing creditors – personal and commercial – is often a good indicator of short-term performance.
Potential lenders will also want to know about other possible sources of repayment from your household (i.e. “outside income” from a 2nd employer, or spousal income). This is referred to as your “Global Cash Flow”
Capital is the money you have personally invested in the business to date, and are willing to continue to reinvest, as well as an indication of how much you’re willing to risk – should the business fail. Interested lenders and investors will often expect you to contribute most, if not all, of your personal and business assets AND to have displayed “sufficient personal financial risk” to establish the business before asking them to commit any funding. Lenders typically prefer that you repay their loan before reaping too many of your personal rewards ($$).
With proper cash flow management – and a relationship with an affordable lender – you can eventually “self-finance” without external loans, resulting in stronger profit margins!!
Collateral including “Guarantees”, are the security items you will need available for most reputable lenders. Giving a lender collateral means that you are pledging specific assets you own, such as your home or business assets, to the lender with the agreement that it will be the secondary repayment source(s), in case you default on the loan payments. A “Personal Guarantee”, on the other hand, is exactly what it says – other than the primary borrower – any other required signer (aka “co-signer”) of a Guarantee document promises to repay the loan on your behalf, if you default – essentially placing their personal credit at risk. Most lenders require this form of guarantee for every owner that has at least 20% equity in the borrowing entity, in addition to specific business or personal assets pledged as collateral.
Conditions describe the intended purpose of the loan. Will the money be used for expansion working capital? Refinance existing debt? Purchase additional equipment, or inventory? The lender will consider local economic conditions and the overall business climate, within both your direct and indirect industries that could affect your business.
These are typically the most subjective of the “5 C’s”, by the individual lenders and their financing preferences.
Character is the general impression you make on the prospective lender or investor. The lender will form an opinion as to whether or not you, as the primary borrower, are sufficiently trustworthy enough to: 1) Repay the loan as agreed, and/or 2) Generate the required Return on Investment (ROI) in your company (i.e. their equity position).
In addition to your personal credit history (FICO score), your educational background and/or industry management experience will certainly be considered. The quality of your references, business relationships, community involvement activities (if any), will also be considered in decisions.
Your professional interaction with a lender can be compared to an employment interview – You only have one chance to make a strong first impression.
“If you think education is expensive, wait until you see how much ignorance costs.”
– Barack Obama –