The single most important thing a business owner can do for their business is to build their business to sell it.
Sell it you ask?
Yes. Build to Sell.
Every decision a business owner makes should be based on that thought. If an entrepreneur can base their business decisions with that underlying idea (in terms of financing), they will be set up for long term success.
The lending institutions base their acceptance or declination on one thing.
Is the business an attractive lending risk.
There are 20 key points every business owner must have in place to be approved by financial institutions when their underwriting team is determining to approve or decline a loan app. Many of these are small, seemingly meaningless ideas. However, lets take a look at it from the eyes of the lenders.
Banks and lending institutions get so many applications from business owners who, quiet frankly, have no business applying for a loan. Their business is not set up to be lent to. The banks are not even viewing these entities as a viable businesses. So the first stage of getting past the computer guidelines is to have these in place.
Additionally, if you were to go to the bank and not have these in place, the loan officer would get a two digit code back from the computer system and all it was say was “Loan application declined.” Your loan officer, without investing some time into the issue, would not know exactly what you needed to do differently to be approved. The loan officers surely do not have the underwriting guidelines for their firm.
In this article we will examine the top three reasons business owners fail at business credit building and business financing.
The first is simply the business owner does not have all the I’s dotted and the T’s crossed in their business. Things like having an 800 number, being listed in the 411 directory, and having a dedicated fax line is a must to a business owner seeking financing. Many business owners I speak with are small businesses, who are just seeking their financing options. It’s impressive to see the amount of businesses that do not even have these first three steps accomplished. Remember, the goal here is to have your business look attractive on paper. In the eyes of a lender, if you do not have an 800 number it is suggested you own a “mom and pop shop” and are not setup for success.
Secondly, business owners have not started to build their business credit. There are right ways and wrong ways to go about building your business credit structure. In the eyes of the lender business owners who go out seeking to open revolving lines of credit and are turned down (due to reasons outside the scope of this article) it appears as though they are fishing for financing. It’s imperative to apply for the right types of credit lines and being approved for those lines when establishing your business credit from the get go.
Thirdly and most relevant to most entrepreneurs: they have not separated their personal liabilities from their business. It’s important for a business owner to have good receivables in his/her business. But, and what’s equally important, is that business owners personal credit is not tied to the business, in any possible way. There are two reasons why you’d want to separate yourself from your business. If something happens to your personal financial situation, you do not want that to be the reason your business is unsuccessful in obtaining financing. Secondly, should something happen to your business, you do not want that to affect your personal credit.