Financing is one of the most common challenges faced by SCORE clients. Most lenders examine the same factors although they may place different emphasis on them.
Lenders evaluate two main areas — the individual and the business. The creditworthiness of the individual is the single most critical evaluation factor. Although applications are reviewed holistically, low credit scores or prior bankruptcies are difficult to overcome.
Banks also prefer to have a history of business with the client. Is your mortgage, home equity, or car loan with the bank? If they are, you’ll have a better chance of being approved.
If you are deemed credit worthy, the focus moves to the business. If it is an existing business, the lender will require three years of prior tax returns. This is the most accurate means a bank has to evaluate your personal finances and the health of the business.
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For start-ups, the business plan is the most critical element. It must be clear, complete, and reasonable. Unrealistic financial projections will undermine your credibility.
Most banks use databases of industries and businesses to compare your results and projections to those that are typical for the industry. These databases are assessable at the downtown Tucson location of the Pima County Library system.
Careful preparation and research before your first meeting will go a long way to establish that you are a solid credit risk.
Ralph Hershberger is president of SCORE Southern Arizona, a nonprofit group that offers free small-business counseling and mentoring by appointment at several locations. For more information, go to scoretucson.org, send email to mentoring@scoresouthernaz.org or call 505-3636.