In order to qualify for a business loan, a client must meet the criteria below. If the client has a deficiency in any of these areas, the chances of qualifying are extremely low.
1) Clients must have a good credit rating. While the exact numbers may vary, depending on the bank, a good rule of thumb is that a client must have at least a 650 credit rating. A stronger credit rating makes for a stronger loan application.
2) Clients must have the cash to put into the business. Generally, a lender wants 15-20% of the total loan amount to be provided by the client. The more cash a client has to fund the business, the more likely they are to get a loan.
3 Clients must have a well-written business plan. Helping the client create a strong business plan is the most important service that a SCORE mentor can provide.
The business plan must include a complete set of financial statements projected for three years. The financial statements include a Profit and Loss statement, a Balance Sheet, and a Cash flow statement. Lenders use these financial statements to determine the ability of the business owner to repay the loan so it is important for these statements to be complete and realistic. A link to these templates can be found on the Oklahoma City SCORE website (www.oklahomacity.score.org) under the heading: SCORE Chapter Members Only: Mentors Toolbox.
4) Clients need collateral to cover the full amount of the loan. Collateral is additional security that assures the lender that the business owner has a secondary set of security for loan repayment. Collateral can be business assets (equipment, inventory, etc) or personal assets such as a home that is not part of the business assets.
If you are working with a client who has a deficiency in any of the areas above, here are some strategies you can recommend so the client can work toward a stronger loan application.
1) Contact the local consumer credit agency to get help with improving credit. Here is a link to the website: https://www.occf.org/cccsok/
2) Work on building cash equity for the business.
3) Review our local podcast, “Business Insights” interview with SCORE member and bank credit analyst, Chris Codding. See link: Chris Codding
4) Below are links to lender options:
REI Oklahoma: https://www.reiok.org/programs/rei-business-lending/
The SBA Lender Match program: https://www.sba.gov/funding-programs/loans
5) Link to the Startup Roadmap on the SCORE website: https://www.score.org/startup-roadmap
6) SBA guaranteed loans may allow borrowers to pledge collateral less than the full loan amount as long as the borrower pledges all available collateral.