Need To Borrow? Mind The Basics
Taking the basic steps to make your business attractive to a lender is especially important given today’s tough credit situation.
It’s challenging for shops to secure financing for new equipment in today’s peculiar credit environment. It seems like banks are willing to loan money only to the companies that don’t need to borrow it. And it’s anybody’s guess how long this situation will last.
Edward A. Testa, vice president of sales at Greystone Equipment Finance Corporation, admits that even companies with solid credit histories now find it tough to borrow money. He points to a July 2008 Federal Reserve survey of senior loan officers in which 65 percent of them report that they tightened their small-business lending practices during the 3 months previous to the report. This figure is up from 50 percent from the preceding quarter. In addition, approximately 60 percent of these loan officers report having more stringent credit standards for loans to mid- and large-sized companies during the same period.
That said, Mr. Testa believes that funds are available to businesses led by people who are able to make their companies attractive to a lender. To that end, he offers some fundamental advice.
• Know how to aptly respond when asked how you plan to repay a loan or make lease payments for new equipment. Don’t simply offer a general response that lacks specifics. Have a plan on paper that describes in detail exactly what you will do to produce the necessary revenue.
• Have that marketing plan answer some key questions. Why is the new equipment needed? What benefits will it bring to the business? Will it replace outdated equipment or allow you to enter a new market? If the new equipment will allow you to reduce operating costs, what will be the actual savings you experience? Detailed answers to these questions offer assurance that your company will have the cash flow to make its payments. They also enhance your credibility as a responsible businessperson, which can have a positive impact on terms and interest rates.
• Get your company’s financials in order. Otherwise, there’s a chance your request will be turned down or you won’t be able to obtain financing at a competitive rate. Current financials give you a leg up in filling out a credit application, too, because all necessary information is in hand.
• Make sure your company looks professional in every way. Being an active participant in a trade association or having a detailed Web site are basic indications that a business is serious about its industry and its future.
Businesses that are willing to take these issues seriously have a very good chance to obtain the credit to grow their operations, Mr. Testa notes. Those that appear best prepared to thrive are better positioned to secure needed financing.