Traditional Lending Practices and Why Some Applicants Slip Through the Cracks

By Josh Hart | merchant cash advance 0

Perhaps the most widely used method of financing for businesses is debt financing. In this case, the funds are coming from institutionalized lenders such as banks, credit unions, asset equity loans (such as home equity financing) or credit card debt. When evaluating your candidacy for a loan, there is a fairly universal method these institutions follow when considering your qualifications: 

Capital: Your own investment in your own business. This is an indicator of intent and confidence by the business owner in the viability and prospects of their company.

Character: Evaluate the trustworthiness, liability, experience, credit history and references to create an overall picture of an individual's reliability.

Capacity: Your ability to repay the debt. This is based on the potential profitability of your business structure, your system of cash flows and your available alternatives to repay the balance if business profitability doesn't live up to expectations.

Collateral: Potential to liquidate assets to repay the balance of the loan. You put these assets up as an insurance policy for the bank and they in turn give you the funds with the contingency that they can use the value of them to repay the remaining balance if necessary.

Conditions: External factors that might affect the future of the business and ability to repay the loan such as customer base, market competition, economic trends, and other liabilities. With the increased regulations on lenders and with many institutions tightening their criteria for potential loans, securing traditional financing has become extremely difficult, particularly if you have a negative mark on your payment history or a less than ideal credit score. Big lenders don't take risks, and they look at numbers more than individuals which results in may potentially profitable ventures falling through the cracks. Other financing alternatives like equity financing require you to give up a share of your business and often to relinquish a certain amount of control over the direction or operations of the business. This can limit future profitability and decrease your autonomy and vision in running your own establishment. If you find that traditional loan options don't work for you, a cash advance may be your best avenue for recourse. With a high approval rate, timely access to funds and a repayment model that works with your cash flow, Merchant Cash Advances provide a viable alternative for funding your established business.  

Last edit: March 6, 2018


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