Subscribe to Blog ContentA great credit score above 700 can help a business get a loan—not necessarily with a bank. Small Firms Get Local Loans quotes a local credit union lender who says cash flow trumps credit score when looking at financials.
The article tells the story of a restaurant chain owner who struggles to get a loan from any one of nine community banks. She wants to expand her business and many believe that the downturn hurts restaurants leading to many closings.
Furthermore, the restaurant owner has the advantage of having collateral—unlike many service businesses. Yet, banks still would not provide a loan to her. Instead, she turns to a local credit union that provided a loan over $500,000 to the chain.
Local and private lenders can look beyond the basic financials. The credit union could see the restaurant chain keeps its overhead low and it has an advantage over many restaurants. While people cut down on eating out during rough times, they don't cut it out completely. They instead switch from more expensive eateries to affordable ones like this chain offers. The credit union could see that.
Another benefit of going to a local, smaller or private lender is that they understand the local climate better as national trends don't always affect the local community. The restaurant chain owner created a three ring binder containing financial statements, restaurant history, proof they're free of debt, and details such as the fact the restaurants lived in bedroom communities that rely on affordable nearby restaurants.
Banks and larger financial institutions won't look at all that data. Even with the chain's excellent credit rating and debt-free status, none of the nine banks came through with a loan. Experts in the article recommend including realistic financial forecasts along with best- and worst-case scenarios.
Collect all your data and be ready to answer the usual questions from lenders. In fact, keeping a binder like the restaurant chain's owner does as it'll be easier to keep it updated over time than to pull one together when you need it.
Start putting together your business binder now by pulling out the following:
- Business plan: Should have all the details such as target market, competitive advantage and growth plans.
- Marketing strategy.
- Financials current and projected.
- Current customers.
- Successes and how the company overcame problems.
- Management team background and bios.
- Having this information handy will also prepare you for questions that come up, keep your business on target, and stay on track.
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