Five quick tips on qualifying for working capital for small business are ones that not everyone thinks about but that many of the successful business people all know of … and practice religiously! Smart business owners have a plan: Are you one of them?
That said here are five practices or habits that can help you to qualify for financing so let’s prepare you … and help you join the ranks of the smart business owners vs. being a victim of your own undoing – or lack there of.
No. 1: Organization and Documentation … If you don’t have good records you’re a disaster looking for a place to go. Lenders don’t want surprises and in fact you can be a weak borrower but if you have your paper trail together a good lender can often times figure out a way to help you because: There should be no surprises.
No. 2: Control and Direction … This shows that you are a solid manager and that you know where your ship is headed and can explain it. When a lender has confidence in an owner they’ll fight to help them but if you can’t show this you’re at your own mercy – end!how to qualify for financing
No. 3: Cash Flow and Account Balances … If Cash Flow is the life blood of business then second to that are our Bank Account Balances. These should always be kept as high as possible. If you can’t do it without help then get it because it will save you a bundle in the end. Of note: Lenders (banks, leasing companies, suppliers etc.) as a rule of thumb like to see three times the amount that a monthly payment is going to be to them as an average daily balance … Why? It shows that you can pay them if you borrow from them. Of note: A suggestion is to use an invoice factoring service to fill in these gaps as well as to take on more business and not miss out on sales as this will pay off and then some in the long run! Face it: We all want to borrow “cheap money” but not all of us are willing to do the work and/or pay the price to access it … but it is hard work that pays off handsomely!
No. 4: Collections and Credit Extensions … If you are selling to slow paying customers and can’t explain it and/or can’t show that you are in control and going to get paid lenders will all but run from you. All too often business owners literally “sell to anyone that will buy” and this is dangerous. Think about what you are doing here because you are vulnerable beyond belief. Of note: In No. 3 it was suggested to consider using a factor to fill in the voids? FYI They’ll also do your credit work too and in many situations insure your accounts receivables. See ‘Ten Questions you should ask about factoring’ for more!
No. 5: Paydex Scores and Business Ratings … Know what these are and fight to pay your bills on time both for your business as well as yourself. If you are going to have to slow pay call your creditors as they are less harsh on you if you are showing that you are committed to communicating. Of note: If you can’t protect both credit bases (and no one here is recommending that you let your personal or business credit score slip to protect the other) you might actually consider as a strategy that you at least protect one and get that as high as you can. The best way of course is putting mechanisms in place to protect your cash flow and keep yourself solvent with that bank account balances as high as you can keep them.
Too tough to handle?
All so many times when I talk to someone on this very subject and they look me in the eye they’ll say “I can’t afford to do this” but once we talk and they think about it they’ll almost always agree “I can’t afford NOT to do this” and move forward.
That said we’d love to hear your thoughts!
Ernie Brown Phone: 1-978-256-8634