Equipment Financing – Are You Bankable?

You have made it through the toughest 3-4 years of business; you have poured your energy, creativity and money into making your company sustain itself and grow. The start-up phase for any business is the most volatile time; lenders and creditors turn away from you when you feel like you need them most but the issue is, as statistics clearly support, your new venture is too risky to lend to.

Now it is 3 years later, you’ve survived, sales are being generated and you’re making money. You should be “bankable” right? Meaning, you should be able to approach a commercial lender for a loan or equipment finance at some amount and get approved. Most business owners would say “yes” but the real answer to the question is – it depends. It depends on how your business has operated during those initial years and what you plan to do with the money.

Here are 3 key points to consider when looking for business capital:

1. Are amajority of your sales coming from just a few clients? If so, that is a red flag and lenders will feel you are too vulnerable to the whims of your key customers. Focus on widening your funnel and servicing a broader range of clients; it will help stabilize your sales in the long run and make it easier to access money down the road.
2. Do you have tons of sales but little or no profit margins? Newer companies tend to sell at cost to promote goodwill or to penetrate a key market. Good sales strategy but not so good when you are in the early start-up phase. Make sure a certain component of your sales has industry-average type of profit margins so that a lender will consider you a player in the industry. If it appears you don’t know what you’re doing, you won’t get approved.
3. Are you requesting money from your lender for equipment which they don’t recognize as good collateral? Many commercial lenders are not “fond” of the newer green technologies like LED lighting and solar systems. Your company may be doing well by all measures yet get denied for a loan request to replace your lighting even if it saves you money each month. The experienced business owner or manager knows that different lending sources specialize in different types of equipment and collateral; make sure you are matching your request with the right source.

Being “bankable” really depends on several internal and external business and economic factors. Time in business alone will not guarantee an instant approval as many of us remember from years past. Lenders will evaluate and review your business operation, your objective for capital requested and the type of gear you intend to purchase as part of their approval process. Be aware of the factors involved so you can make changes where appropriate to increase the chances of getting funded more often.