Three C’s to Qualifying For Bank Loans, Lines of Credit, Working Capital, Equipment Financing, Acquisition Financing and other Bank Financing

There are Three important keys to getting small business financing bank loans, whether it is in the form of a line of credit, working capital, equipment financing or even acquisition financing:

Capital

Capital is the up front funds the bank expects you to infuse into a business venture when applying for a bank loan.  Banks refer to it as having “skin in the game.”  If you don’t put up your share of the funds into a project, the bank won’t put up theirs to loan you the money.  The more you have the ability to put in, the likelier your chances of approval to secure a bank loan.  This makes sense on a basic level, as the bank is putting is capital at risk, so it wants to have a borrower who is also going to his/her capital at risk.

Collateral

Collateral is the hard assets the bank has the ability to take back if your business venture happens to fail.   Obviously, not all businesses succeed.  So when a business fails that has a loan to pay back, the bank needs to have tangible collateral to collect against.   Quite frequently, the collateral for a bank loan is a home, other real estate, cash or investment accounts. The more you have of these items, the more likely you are to get qualified for the bank loan and financing that you are looking for.  In the case of equipment financing, sometimes the equipment financed can be the collateral itself.

Capacity

Capacity is the ability to repay the money you wish to borrow from the bank. The good old days of the mid 2000s are over.  Which means that gone are the days when anyone with a pulse could get a bank loan. Nowadays, if your business, or you personally, cannot afford to pay a loan on paper, you won’t get a business loan and bank financing.  This means that undocumented loans are very rare to receive.  You need to have documentable income to prove that you have the capacity and ability to repay.   The only circumstances where someone can get an undocumented loan is when they have a long standing history with a smaller community bank and a LOT of cash in the accounts of the bank.

Bottom Line

Looking to buy a new business, expand your current one or start something up? Better make sure you have the Three Cs in good order, Capital, Collateral & Capacity.   Contact our Client Care Manager Sonia Chhabra at  (888) 926-9193 or email cs@justelementary.com for assistance with selecting a bank to obtain financing, lines of credit or other business loans for your business.