Guides on Business Financing

by | Feb 25, 2019 | Books + beyond, Business analytics

business financing guides

The process for securing business financing is quite common to many business owners. When bankers start reviewing the loan application, they are quite interested in a few items as follows:

Business plan

A business plan is an effective tool for businesses as it communicates many key aspects of the business. A well-prepared business plan can help bankers to understand any current or future funding needs and facilitate the financing accordingly.

Key ratios

There are 3 key ratios that bankers are interested. They are current ratio, loan to tangible net worth and debt service coverage. You can refer to the article that I wrote in the past. Please click here.

There is another key item that attract lenders’ attention. It is your personal credit scores.

Your credit score is an important part of your financial picture. Bankers/lenders will combine your credit score with the information in your credit report to assess the risk associated with the future lending. If your score is maintained at  high number, then your profile appears less risk to lenders. If you had a bad record or filed bankruptcy in the past, then lenders may question your repayment ability. As a result, maintaining a high level of credit score will be critical. But how? Here is a few things that you need to pay attention to:

  1. Credit card utilization ratio, if this ratio is less than 30%, it indicates a good credit score. For example if you have a credit card limit of 10k and you carry a balance of 3k, that means utilization is 30%.
  2. Avoid loan inquiries,which may result in hard hits. It is normal when business owners shop around for the best available financing option for the business.But keep in mind that certain types of inquiries can negatively affect your score. That is what we call “ hard hits”. If you are asking about credit,  always ask whether the application will result in a hard hit or a soft hit.
  3. Build and utilize the business credit score over the personal one, like utilize corporate credit cards, leverage suppliers’ financing options.

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