Is your business fundable? When you need business loans or financing, fundability is the term that financial institutions will use to describe how well your business stacks up with regard to the risks of extending credit. If you can show that your business is fundable, you will have better chances of getting a loan with good terms. In order to make your business more fundable, take a closer look at the following three areas:
The first area to consider is lender compliance which basically means falling within the lender’s approval guidelines. This refers to the items that lenders look for when establishing your business fundability. These items include your credit score and types of credit. Diversifying the types of credit you have will improve your lender compliance. It is a good idea, therefore, to carry a couple of credit cards (but make sure you do not significantly utilize your full credit availability), maintain several vendor accounts, and have one or more bank loans. Be sure, however, that all of these debts are in good standing, as overdue balances and delinquent accounts will negatively affect your fundability. If you have a recent debt that has already been paid off, this will help to improve your fundability as well.
Your business credit score is also an important factor when establishing your business fundability. Therefore, you should work hard to build strong personal consumer credit scores with each of the top national credit reporting agencies, as this is an important factor in determining your business credit score. Your business credit score will influence whether or not you can secure the business loan you want. Your business credit score is determined by a different system than your personal credit score, but does take your personal credit score into consideration. To improve your score, learn the full parameters of how the score is determined, verify that your vendors are reporting payments, pay off any outstanding debts, make payments on time, and avoid other lines of credit. Find out your Small Business Credit Score here.
Business viability is measured by a combination of the long-term survival of the business and an ongoing yearly profit. For businesses that have been established for some time, this viability can be established based on historical data that reflects a continuous stream of profitability over the years. The longer the business has been profitable, the better its viability. Another way to improve your viability, especially if your business is a new business, is to develop a model and plan that make sense. This model and plan should include financial projection, based upon sound assumptions, over the next two to three years that indicate growing profitability. You need to prove to the lender that your business will be able to pay back any loan that the lender extends you.
The effort you put into making your business fundable will pay off when you meet with lenders. With the right credit criteria, established and/or projected profitability, and financial background in place, you can present your business plan to lenders with confidence that you will be successful in securing the business loans you require.
How can you tell what your fundability is?