When Applying for Business Credit, Think of This Acronym

Applying for business credit? Here are four basics to consider. If you or your business are seeking credit and feel a bit nervous about your chances of getting the cash you need; pause for a moment, take a deep breath and remember this simple acronym.

This very tight, almost non-existent lending market for small businesses invokes many emotions from business owners seeking capital to grow and expand. These emotions run the gamut from despair to downright anger.

If you or your business are seeking credit and feel a bit nervous about your chances of getting the cash you need, pause for a moment, take a deep breath and remember a simple acronym – C.R.A.P.

C – Credit. Your personal credit matters. It matter more now then ever. Today, lenders are not looking for ways to say “yes”, they are only looking for reason to say “no.” Their easiest, quickest method is to pull your personal credit history. If your credit score is not in the excellent range – the answer is ‘no’ – before these lenders spend both time and money performing other due diligence on you or your firm. Lenders want to ensure that you (the borrower) put them first when it comes to allocating the money you or your business has. The best barometer of your willingness to repay your creditors is your personal credit history – period. So, before you begin talking with lenders, pull your credit report. If your score is not in the upper 2% of all borrowers, simply say to yourself “crap” and move on.

R – Repayment. Even with a strong credit history, if you cannot demonstrate, right now, that you can make minimum payments, the answer will be “no.” Lenders don’t care that you think you will make a million dollars with their loan proceeds sometime in the future. You have to demonstrate that you have (through personal income) or your business has (through the conversion of assets or from profits) the cash flow to repay the debt facility – right now. Put yourself in their shoes. Banks and other lenders don’t want to be your partner and take an equity stake in your business. They want to be repaid and earn interest on the money they lend. This is their business and how they make their money. So, before you begin talking with lenders, determine how you intend to pay them back (from income – personal or business) that you earn “now”. If you don’t have income or another method of repayment, simply say to yourself “crap” and move on.

A – Assets. This is an asset based lending environment. Asset based means more than just having collateral. Lenders what to lend against specific assets that are, for the most part, guaranteed to repay their loans. Assets like business credit card receipts, accounts receivables or purchase orders, or even business property, plant and equipment. Thus, lenders can have first lien entitlements to these assets. They will control them to ensure that their (the asset’s) cash flow comes through them first. Example, with accounts receivable factoring, the lender will invoice your customer requiring that all payments go through them. Thus, the lender is paid first (you get the remaining payment). If you do not have assets, either business or personal; assets that are wholly owned by you and have significant value, simply say to yourself “crap” and move on.

P – Persistence. Persistence is the key to getting any loan in any environment. You will hear many “NOs” before you hear one “YES.” More than likely, you will hear many “NOs” before you hear even one “MAYBE.” Just stick with it. Each lender has its own lending policies and area of expertise. Some lenders are flush with money to lend while others are overextended. To get the loan you need, you have to work hard and just persevere. Don’t take “NOs” personal – use them as building blocks for the next time. So, if you are unwilling to put in the time and effort, simply say to yourself “crap” and move on.

While the above is meant to provide a bit of humor in these troubling times, the information provided is still good guidance when you are seeking credit for business growth. Therefore, instead of being surprised, shocked or just downright angry when you get turned down, think about the acronym C.R.A.P. If you spend time ensuring that you are creditworthy before you begin your search, not only do you stand a better chance of getting the loan you need but should save valuable time and energy in the process.