What Makes a Successful Business Loan Application
April 07, 2014
Access to capital is vital to company growth, particularly if you’re a small privately held company. While the vast majority of business owners (89%) recently surveyed had growth strategy aspirations, only 46% of them had the required capital resources to execute those strategies. These are the findings of Pepperdine University’s 2014 Capital Markets Report.
This same study reported that the smallest businesses (revenues less than $5 million) seeking bank loans have a tough go of it, with a mere 39% reporting success. Why such low success rates? What can business owners do to improve their chances of getting the financing they need to pursue growth?
Not all Cash Flow is Equal
The top reason lenders rejected business loan applications, according to the Pepperdine study, was the quality of the applicant’s earnings or cash flow.
Your loan application looks most appealing to lenders when your cash flow comes predominantly from sustainable, profitable sales. But sometimes cash flow comes from nonrecurring sources, like the sale of real estate assets or perhaps by delaying payments to vendors. This type of cash flow will be deemed of a lower quality by any financing institution.
Your accounting practices can also impact the quality of your cash flow. If you’re maximizing expenses to depress cash and earnings, you’ll minimize more than just your taxes – you’ll reduce your likelihood of getting a loan, too. Lenders will want to see more evidence that the business is profitable and has earning power.
Collateral and Debt Load Count Heavily
Insufficient collateral and unfavorable debt loads were the next two most commonly cited reasons for loan denials in the Pepperdine study. Most banks will require collateral, particularly for loans of $1 million or higher. Personal guarantees were required for loans below $5 million in the survey. Lenders would rather have the loan repaid than wind up owning your collateral – equipment, buildings, inventory or accounts receivables – which is why they look for sufficient cash flow from the business.
How to Look Good to Lenders
Fast process speed, 100% product quality, and efficient cost management are the hallmarks of business excellence – and the result of a serious commitment to continuous improvement. Prove your business can reliably deliver high-quality products on time for your customers’ demand, while operating efficiently and profitably, and your odds of receiving the financing you seek to invest in your growth strategy is far more likely to be approved.
To find out more about getting your company on the path to business excellence, get in touch with our professional business growth consultants. They can help you set attainable goals and implement the processes to achieve them most efficiently.
“CONNSTEP solved a huge problem for us and helped us bring our delivery rate to 100%. As a direct result of that, we have been awarded with an increase in business which, ultimately, will also benefit (our supplier) Har-Conn.”
“I see great value in the new experiences and perspectives CONNSTEP brings to our business, at reasonable prices. They’re not like consultants, they’re like partners in the business – willing to roll up their sleeves and help.”
“CONNSTEP has proved to be a tremendous resource for ESI. CONNSTEP has helped us to adapt to today’s marketplace and remain a quality minded, competitive global player. Our ISO/TS16949 implementation process was efficient and rewarding. I look forward to our future projects with CONNSTEP.”
“CONNSTEP worked with FuelCell Energy to educate and facilitate Lean initiatives and to help meet our needs to establish an overall production improvement plan. This plan has been utilized over a period of time as a ‘guiding light’ to spur numerous improvements that dramatically reduced our product cost.”
“CONNSTEP is a valuable partner to Hologic, providing the expertise and ‘outside eyes’ everyone needs to keep their continuous improvement on track. We are now well-positioned on a dynamic growth path and look forward to a long-term relationship with CONNSTEP.”
“Our experience working with CONNSTEP has brought us benefits we never expected. It’s a great team to work with!”
“The goals of the team were to reduce manufacturing lead-time, reduce floor space utilized, and increase worker productivity. All the goals were met. CONNSTEP helped us to better compete.”
“The Business Growth Program is working well for us. We enhanced our website following the meetings to improve our SEO and become more visible to search engines. The segment on negotiating … promoted changes in our thinking and improved how we interact with customers. The mentoring between sessions was helpful in boosting our progress.”