The Stuff that Matters

There are some key items which underwriters target and look at; just because someone has a great credit score or been in business for 10 years doesn’t mean approvals will be automatic. Business owners and managers are sometimes perplexed regarding why they didn’t get the approval they “thought” they deserved.

Let’s take some of the mystery out of a credit analysis and understand some key areas.

CREDIT: For small businesses and partnerships, personal FICO scores will come into play. Scores above 700 rate high, scores in the 650s can still get good rates if other factors are strong and scores below that will need some justification. Derogatory items on a credit report like foreclosures, tax liens, judgments and accounts past 60 days due will negatively impact the type of approval and rate a company will get. A bankruptcy will mean the company will have to have some strong collateral to reinforce the finance request.

TRACK-RECORD: Time in business of more than 2 years is past the “start-up” phase and critical. Another milestone is 5 years in business; finance requests in the $500K range require at least 5 years of being established and multi-million dollar projects sometimes require 10 years in business. For smaller businesses, TIB plays an important role, with larger companies, strong collateral can offset short time in business. The point is to get beyond the 2 year start-up phase and once you reach 5 years then you have more bargaining power.

RECORDS: CPA audited financials are still king. Next in line are CPA prepared financials or CPA reviewed. The credentials of who is preparing the taxes and financial statements are important to validate the accuracy of how things are running.

D&B REPORT: Paydex score of 70 or higher is a positive score. Paydex indicates how timely a company pays its vendors and accounts. Pay on time or before due date and the score will shoot upward; consistent late pays will bring it down. A history of paying late does not fare well with new potential creditors.

Other factors include cash flow, net worth, D&B risk rating and monthly bank balances. Many factors combined tell the story of how likely a potential borrower will pay back its debt. Strength in 1 or 2 of these areas will not justify an approval with the lowest rates.