A “deal killer” in financing is one that stops the approval review process right in it’s’ tracks. The finance request is dead and the chances of getting approved are gone. The deal killers are clear and usually well defined but somehow businesses still submit applications with these killers on the loose. Besides being embarrassing, it is wasted effort gathering financials, filling out forms and going through the trouble of trying to get your finance approved if these exist.
The most common deal killers and how to handle them include:
1) Open liens on your Dun & Bradstreet or personal credit file. No lender will approve you with an open lien still pending on your credit file. An open lien means you still owe someone money which, for whatever reason, you refused to pay and they filed a judgment against you. Lenders see you as a high risk and likely to do that again. You must have those liens cleared, resolved or at least show that you are on a payment plan with the debtor to get those resolved. A settlement letter doesn’t erase the fact that you had a lien but it does show that you are taking care of it and being responsible.
2) Lawsuits. Pending or ongoing legal action against you or your company will raise many flags and questions as to the causes and implications of that action. How will the suit affect you and your company? Will it put you out of business or alter how you do business? How will it affect cash flow? Many questions will be asked and it is highly recommended you write a summary of exactly what happened, what the effects will be and the likely outcome. At least with a summary, the lender can assess whether it makes sense to approve you, on a conditional basis, or not. Without an attempt to explain what happened leaves the lender no choice but to reject your request.
3) Recent bankruptcy. A BK within the last 5 years automatically puts you in the high risk category if not stop the approval process altogether. Still a good summary and story of what happened will sometimes help get you approved if your business is currently running well and if you have enough good personal assets to guarantee the loan. Having had a complete mismanagement of your business leading to its downfall will be harder to overcome as opposed to a BK caused by a divorce or split up with a business partner. Don’t lie but shine the most positive light on your circumstances as possible.
4) Not a complete deal killer but definitely a roadblock is inadequate cash flow. If you are just barely covering your expenses with your revenues then you should reconsider adding debt to your business. This is true even in the case when the piece of equipment may actually save you money. A lender will want to see that you have a cushion of cash coming in apart from the savings you get from adding your new equipment. Some clients are mistaken when they assume they can take into account future cash flow potential from the system they are acquiring; it is an added benefit but your company has to qualify without that consideration.
Any of these issues will place you in a high risk profile. A way to head off instant declines is to pay for a copy of your D&B report and personal credit profile and review them for accuracy and to see what negatives are reported. Resolve any issues and get on a payment plan to satisfy outstanding debts. Hiring a credit repair service to clean up old negative reported data is a good idea. Not much can be done with a bankruptcy other than letting time go by and creating that positive summary of what happened. Don’t let a deal killer catch you by surprise and head off the problems in advance.