What’s holding your company
back from pursing that next project or new opportunity? Most likely it’s
cashflow and availability of capital resources to put toward new ventures while
maintaining everyday operations. In this article, we’ll cover the basics of
what lenders are looking for and how you can best prepare to obtain your
desired level of capital for growth.
Cashflow
is crucial for any contractor. A contractor does not want to find themselves
living contract-to-contract without access to any other additional sources of
capital to satisfy even the basic costs of doing business. Rather, a contractor
should guarantee that they have or have access to alternative funding sources
to supplement the primary contract revenue cashflow. It’s always best to have
it and not need it, than need it and not have it. Therefore, contractors with
heavy cashflows as well as contractors with poor cashflows should ensure they
are in the best position to obtain additional capital when the time comes.
So,
what are lenders looking for when you apply for borrowing, whether it is a term
loan, line of credit, vehicle financing, or other instrument? The
qualifications for lending vary by banking institution or other lenders based
on their risk appetite. There are general standards that run across the board,
but in most instances, it’s the banks willingness and comfort level with
lending on a case-by-case basis that will dictate whether your company will ultimately
qualify. In regard to general standards, lenders will want to know that the
loan is being used for a substantiated business purpose, credit history and
your ability to pay back the loan.
Banks
and lenders will take into account both financial and non-financial data in
order to assess credit worthiness of the applicant. Here are some of those
measures:
Personal
credit history of owners – General
checks to ensure business owners are timely payers and have no significant
outstanding debts.
Strength
of collateral – What
assets does the company have available to assist in securing a loan.
Leverage
ratios –The
primary objective of these ratios is for a bank to assess a company’s ability
to settle business liabilities.
Business
credit history – Similar
to personal credit history, the company will also be subject to review
regarding any other outstanding significant loan balances and payment history
of obligations.
Company’s
overall financial trends – A
company’s history can be crucial in obtaining lending. The lender will want to
know if the Company is profitable and will continue as a going-concern.
Now
that the basic criteria have been set, how can your company best position
itself for obtaining lending?
Maintain
thorough books and records – As
much as this may be an obvious recommendation, it can be the most important
since it has an impact on all of the general criteria.
Understanding
the lender – As
a result of increased regulations on the banking industry, it’s inevitability
led banks to decrease their risk appetites across the board. However, a bank or
lender’s willingness to extend loans still varies from bank-to-bank and may
dictate how you present your lending application package and presentation.
Developing
a clear plan for borrowed capital – It’s extremely important to have a
concise plan when presenting to the bank. Detailed and clearly defined action
steps will show the potential bank or lender that you’re a responsible
applicant and provide comfort on how the capital is being spent.
Overall,
whether a company should or should not pursue debt financing will be on an
individual basis. A company must reflect on its current situation to assess the
value and risk involved with borrowing funds. It’s also important to view
lending not only as a short-term solution but a contributing factor into the
long-term business model. Lending might not be needed today but with
unpredictable and erratic market conditions, it’d be wise for companies to
explore what options are available now. Naturally, as a company’s financial
position declines with down turns in the market, so does the ability to obtain
lending as a result of the less favorable financial position. Therefore, it’s
always important to look at lending with both a short-term and prospective lens. For detail information visit http://allindiayellowpage.com/