We all know what traditional lenders want to see when evaluating our credit reports, but in the world of business funding, there is a totally different slew of factors that underwriting will be looking out for. At Funderhunt, we routinely help with funding for those with "less-than-perfect" situations, and if the money is out there for your business, you'll find it with Funderhunt, at the best rates and terms you qualify for, without a broker fee. Rarely do we come across perfect files, but if you can avoid these things that lenders prefer not to see, you may just find yourself enjoying the best rates that the industry has to offer.
1. Negative days on your business bank statements.
This doesn't mean that you'll be precluded from funding entirely, just because of a few negative days (or maybe even a bunch), but a lender will find it hard to be comfortable with your ability to pay back if you have trouble keeping your account positive.
2. Negative revenue trend.
Usually, you wouldn't want to invest in a stock if the chart was going from the upper left corner of the chart to the lower right. Underwriters are considering your ability to pay back smoothly for a certain period, so a shrinking revenue flow can certainly scare off some investors entirely, and/or be reflected in the offer size as well as the rates, terms etc..
3. Limited number of deposits.
You may meet certain minimum revenue requirements, but lenders also like to see your revenue coming from more than just one or a couple sources/clients. I was working with a merchant just today who was finding it impossible to secure an offer.. Turns out, sure enough, although he had met minimum revenue requirements, there were only one or two deposits monthly. This can be a sign that your client base is not as diverse as underwriting would like it to be. When your business depends on one client, your perceived likelihood of default is much greater. As with all rates, the higher the likelihood of default, you guessed it... The higher the rate.
4. Low average daily balance in the business account.
Everything is taken into consideration in the underwriting process, including the amount of liquid cash you keep in the business bank account. Your inability to keep a certain cash cushion, however small, is surely something that gives many lenders the heeby-geebies. I understand the intricacies of running a business, so I know that when you have to spend, you have to spend. Period. That being said, prior to the funding process, it will help you to keep as much cash in the account as possible.
5. Existing positions/advances.
Let's not be mistaken. There is an entire industry born of lenders willing to fund merchants whom are still currently paying off one or multiple merchant cash advances. When these deals are priced, however, knowing there is an existing balance or "senior position" hanging over the company will typically result in shorter terms and higher rates. Not ALL the time, but typically. I noted in a recent blog that I have noticed these "secondary" "tertiary" etc. offers become more competitive, but this factor still exists, for the most part, to this day. So you can still get funded in most cases, but for the sake of everyone involved, keep the expectations realistic.
6. Low personal credit score.
At the risk of turning off some merchants... I hate to say this but...Ok here goes... Your credit matters. The truth is that merchants with credit scores in the 400's get funded all the time, but your personal credit can be the difference between getting the truly best rates available in the industry, and just "the best rates that you qualify for". Don't kill the messenger, heck, I want you to get as much money as you can use, and at the best rates and terms possible. Just know and understand that there is a rate spectrum, and although your credit score is far from the be-all-end-all of your eligibility for funding, it can help or hurt your offer. You're always wise to guard your credit score closely.
7. Insufficient funds incidents.
Pretty obvious with this one. If you saw someone unable to make payments to others, would you want to lend them money!? Lenders are more understanding than you may think, in many cases. Despite the humanity and the desire to help, underwriting will not get the "warm and fuzzies" when seeing multiple insufficient funds incidents on your bank statements. Many lenders are willing to lend despite these occurrences, but too many "NSFs" certainly won't help in securing the best rates and terms for your business.
8. Lack of a "brick & mortar".
We fund home based businesses regularly. I have noticed, however, that some lenders have more stringent qualifications for these types of enterprises. I think just knowing that you've committed to having, and are successful and stable enough to have, a physical location dedicated to your business, says something about your business' stature, and gives lenders greater comfort in betting that you'll be around. This may be one that you can't do anything about just yet, but the good news is that many lenders are still eager to lend to these businesses.
9. Lack of a web presence.
They say "Image is everything". Don't tell our favorite lemon-lime soda company I said that, but many lenders look for clues to a business' legitimacy the same way we would, with a good ol' Google search. I'm sure a lot of us wish that was ALL they looked at, and this is probably one of the LEAST important of all the things lenders hate, but don't think that some folks aren't looking for clues as they evaluate/determine/gage your creditworthiness. Just something to bare in mind.
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