The Lender Reviews Everything

When you apply for financing and your tax returns and/or personal financial statement shows that you have interests in other businesses or property, the lender will want to review the financials on those other businesses.

When it comes down to it, the Lender has the right to ask for this information.

The question from our client is often, “Why is this germane to my financing request for my business?  That other business has nothing to do with the business I’m financing.”

While this may be true, remember that you’re asking the lender to assess the risk of lending money to you and to your business (the one on the application), and if there are negative aspects to your other businesses that affect the financial health of this business, the lender wants to assess that risk.

The good news is that you can control the narrative to an extent. Describe what the other business is via a summary statement and how it interacts with the business you are financing.  Especially with regards to debt.

There’s nothing wrong with full disclosure.  Get it out of the way upfront. Don’t wait for the Lender to ask for it.

Understand why the Lender wants that information instead of fighting the request.

The Lender has the right to ask these questions.  Pushing back is okay, as long as you do so in a gentle fashion.  In the end, it’s about achieving your goal of obtaining the financing you need to grow your business with the least muss and fuss as possible.

Download your “HOMEWORK”! You’ll thank us later.

Stop worrying about what's required when pursuing a business loan for your small business. This list will indicate what a lender, bank, SBA, etc. will want to know about you and your small business if you're looking for a business loan. These are prudent documents that help tell your small business story. Without them, it's difficult for lenders to assess you as a risk when it comes to lending your small business money. This is NOT SPECIFIC to the SBA EIDL loan.

Your Banker Doesn’t Make the Decision

Ever heard of too many chefs in the kitchen? You know how it goes. There’s a bit of chaos, too many people involved in making decisions.

In a perfect world you’d get your credit decision very quickly. From your Banker.  You have all your relationships there, with your Banker.  You believe they know everything about you and your business there is to know because of those relationships.  And you’ve been a loyal customer for many years.

So when you find yourself growing your business and suddenly needing working capital to fuel that growth, your first instinct is to contact your Banker.  Because of the relationships. And, knowing the value of your relationships you truly believe your Banker can give your financing request prompt consideration and a quick decision, yes, or no, on the application you’ve submitted. In the banking lingo it’s called a “credit decision.”

A decision based on the entire credit profile—income, cash flow, business plans, credit, debt, etc.—to either approve your financing request or to deny your request. After all, your time is very valuable and your business is growing; you don’t have time to waste if a credit decision isn’t going to go your way.

But there’s an entire system at the bank where it’s out of the hands of your Banker to make that quick credit decision.  There are Underwriters and processing staff involved to review your credit profile, to compile notes and compare everything against the Bank’s guidelines for lending.

And still you wonder, “What about my relationship?”  Yes, your Banker is your go-to person who have been so valuable to you as you’ve grown your business to this point, guiding you with the right accounts and products.  So, why can’t your Banker give your loan request the once-over and tell you, honestly, and based on your longstanding relationship and the bank’s guidelines, if the request will result in a “Yes” or a “No?”

The answer is simple.  Your Banker is not permitted to make credit decisions.  Any of them. Your Banker wants to help you, wants to maintain the worthiness of your relationships.  But your Banker’s hands are tied because she is not permitted to make credit-decisions on behalf of the Bank.

Your Loan Application must go through the system.  Later, if the system fails you or doesn’t meet your expectations, even if you are approved for the financing, you may want to blame your Banker and ask, “Why couldn’t they tell me this from the beginning and not waste my time?”  

Because they can’t, that’s why. Telling you from the beginning qualifies as a credit decision, and that’s out of their hands.

Unreleased UCC Liens

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Watch out for unreleased UCC Liens; they can slow down your financing request.

Whatever your Business Credit financing request, when you borrow money to grow your business, whether as a loan or a line of credit, the lender will file a UCC lien against your business. That lien protects the lender’s interest in your business in the event of default.

After the loan is paid, the lender is required to file a release of that UCC lien.  What businesses often discover, much later on, is that the Lender never cleared the lien. And, often as not, the business discovers this UCC lien lurking in the background only when they’ve applied for a new round of credit financing.  The new lending process is held up until the old UCC lien is released by the previous lender.

Growth sneaks up on you and you find yourself in need of working capital.  You need to apply for new financing and your lender gets you approved and they’re ready to close and they do a search and discover the unreleased UCC lien.

The worst part of this process, worse than slowing down access to your new round of working capital financing, is what you discover when you call the old Lender.  We’ve seen it with clients at Aurora Consulting.  The previous Lender says, “Oh, this happens all the time… You just have to call and let us know, and we’ll release it.”

Shocked? Yes, you should be.  This should be part of the lending process as routine as any other, but it’s not.

You can protect your business’s future need for working capital by taking some simple steps.  You can conduct active UCC lien searches on your business. Contact your local County Clerk’s office or Department of State website and conduct an search.   You can create a relationship with a local title company, and probably for a very reasonable fee that title company can do a fast, thorough UCC search any time you need it.

Or, you can follow up with a Lender once you’ve satisfied a loan, or paid off and closed a line of credit.  Request a written satisfaction notice from the Lender.  Once you receive it, follow up with the Lender within thirty days to verify they’ve filed the release on their UCC Lien.

You’ve got better things to do with your business than worry about slowing down a future financing process.  Taking some simple preventative measures today will help you promptly access working capital when your growing business needs it.

Visit our FINANCING FODDER YouTube Playlist for more info on how to manage your business loan request.

Two Most Important Documents

There are two documents that are the most important documents that you should include and have ready for immediate access whenever applying for financing.

First and foremost, your current Year-To-Date (YTD) Income Statement. At Aurora Business Consulting, we believe you should be updating your YTD Income Statement every quarter, but it couldn’t hurt to update it every month. With automated bookkeeping software, creating a quick YTD Income Statement should be easy to accomplish.

The second important document to have at the ready is a comprehensive marketing plan. We don’t mean a one or two page marketing statement.  A comprehensive marketing plan with a full assessment of your marketing action plan, including specific strategies, Situational Analysis, demographics, SWOT analysis and cost analysis and expected outcomes is the recommended document to have at the ready.

Realistically your marketing plan should already be in place as a foundational element of your business operations.  In the event you need to apply for financing, and if there are changes to your marketing plan, you need only update the plan accordingly.  Especially if the financing request involves working capital for marketing expenses, or equipment purchases for the potential increased business revenues generated by your new marketing vision.

Why a marketing plan when you’re applying for financing? You know your objectives on maintaining and growing your business; the lender wants to know your objectives also.

With these two important documents, when you present the marketing plan and the income statement promptly and efficiently, it says something about your way of conducting business. You’re sending a clear signal to the Lender about the high quality methods you use to run your business; you’re giving the Lender a sense of “comfort” about the risk assessment on your financing request.

What if your financials are weak in certain areas for the last couple of years? The Marketing Plan also could potentially overcome some objections the lender has to something that’s weak in your financials.

The marketing plan shows the way you’re going to increase revenue either by something you’re doing already or something you plan to do which is why you’re applying for working capital or equipment capital.

Lessons, Lenders, Decisions and Documents

Lessons with Lenders and Decision with Documents

When we locate the right Lender to provide a financing solution for your capital needs, the Lender requests documents as part of the application process.  We prefer to collect and review as many documents as possible early in our qualifying process.

We review each document you submit.  We do this to determine your business’ qualifications for the different financing products available through our matrix of Lenders.  But we also review your documents to look for any issues that might arise in the financing request and to resolve those issues before we submit your request to a Lender. Not all Lenders require all these documents, and occasionally we prefer to submit certain documents only after a detailed conversation with a Lender.

The definition of a successful Loan Application is the approval you want, the approval you need, and the approval that meets your timeline.

Early on in our long experience working in the financial services industry, we learned the lessons of successful applications:

Lesson 1: The Application can make or break the deal.  The Application is the source of all information and, ultimately, the guidepost for processing and Underwriting.  The more complete and accurate an Application, the better the Underwriting RESULT.  That RESULT is not only an approval, but a timely one.  The complete Application typically anticipates the Underwriter’s thinking and answers questions before they’re asked.

Lesson 2: It’s all about the paper.  Yes, even in the 21st Century (is it time yet to say, “Beam me up, Scotty?”), you have to support your Application with documents.

Lesson 3: The front-loader.  When you submit your Application with a complete basic set of documents at the onset, your process moves much quicker along to the goal line.

Lesson 4: Give ’em what they need, not what they want. Many times a Lender and/or Underwriter will ask for more documents than are necessary.  We’ve learned time and again to push-back on certain documents requests.  Often, we’ll ask the Underwriter for a valid reason for the document request.  Piling more documents into the Application package simply because they “want it” slows down your approval timeline.  You’d be surprised with how many times a requested document isn’t actually needed for the loan approval.

Lesson 5: Garbage in, garbage out.  A single document, presented incorrectly, can torpedo your financing request.  At the very least, a document that presents a challenge to the loan approval process should be presented with an accurate explanation, whether the document provides a positive or negative aspect to the entirety of the Application.  We learned long ago the value of the phrase, “Garbage in, garbage out.”

Lesson 6: Underwriting is Subjective.  Underwriting is more a subjective than an objective process. You want your Application to move quickly through the system for one important reason: don’t give the Underwriter time to develop a dislike for your Application.  When an Underwriter can move efficiently and quickly through a Loan Application, they don’t have time to develop negative opinions about the Application. The lingering-loan-application simply provides an Underwriter with more time to excessively scrutinize details that may not really be negative, but can develop into a negative aspect in the Underwriter’s subjective way of thinking.  You know, they’re human too.

Subscribe to our Youtube Channel and check out our video on DIY your Business Loan Application.

Visit our Financing Fodder YouTube Playlist for more information on how to prepare yourself when requesting a business loan.

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