A Guide to Credit Approval

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There is a general misconception that FICO score is the only deciding factor when being considered for a business loan.  In reality lenders consider many factors in conjunction with a customer’s score including but not limited to time in business, delinquencies, bank balances, and credit utilization just to name a few.

That’s why we wanted to help you understand what lenders look for when you apply for financing.

  • Time in business:  Shows stability in the industry and consistency with change in the economic market. In essence having a longer time in business helps to prove the businesses’ ability to change and adapt with the industry and economy.
  • Delinquency:  Lenders typically look to see if, when and how often a business owner is delinquent on accounts and how they have handled the recovery. For example: If one or more accounts  where shown in delinquency over a short period of time , but a delinquency has not occurred since it is shows more favorable than business owners who show habitual delinquency on one or more accounts.
  • Bank Balances: By reviewing a business’s bank balances especially the business’ operating account a lender can determine the capacity for the business to make payments on any future financing contracts. For example: the daily and monthly bank balances are a great indicator if a business has the funds available to take on additional debt and make monthly payments on time and in full.
  • Credit Line Utilization: This is viewed by underwriters to verify how often a business owner is using credit, and what they are using it for and how much. This factor helps lenders to identify if the business owner is managing their debt well or if they are struggling to stay within their means. It also identifies how close a business owner is to reaching their maximum debt to credit ratio.
  • FICO Score: A business owner or decision maker’s FICO score itself is a summary of the owner’s ability to manage personal finances which often translates into how they manage their business finances.

 

Are you approved?

Once approved there are just a few more steps to getting your financing finalized that you should know about and be prepared to provide to your lender.

  • Standard Funding Requirements: This stage of the process is not only essential for the lender but also beneficial to you as the customer. In this process the lender is looking to obtain acknowledgment from business owner or decision maker to commence contract(s) and it gives the lender the opportunity to validate and verify identity of business owner or decision maker to protect them against identify fraud.

Here are some of the things you might need:

  • Voided check to identify and verify business account
  • Business owner or decision makers’ driver’s license to verify identity
  • Verification of equipment ownership (depending the type of purchase)
  • Invoice from the vendor
  • Proof of insurance on the asset (particular insurance type may vary per equipment being purchased)