The 3C’s to Better Credit – the Lenders Edition

On September 26, 2018, the Federal Reserve raised interest rate by 0.25%. That brings prime rate to 5.25%. Rate has been increasing at 0.25% interval at each quarter this year. I recently presented the 3 C’s to Better Credit in front of local business owners and arming them with valuable information on how to prepare themselves before talking to lenders. The best time to talk to lenders is NOW before rate continues to rise again and the cost of borrowing becomes a factor hindering growth. This could put a stop to growth plan and ultimately lead to layoff or going out of business.

Recently, I attended a panel discussion at the Commercial Finance Association in Tampa and asked the panelists (bankers and alternative funding professionals) this very important question. The answer not only doesn’t surprise me, it confirms what I have always believed that being proactive is always the best approach.

I asked that if businesses are planning on obtaining a loan, are there things that they can do to prepare themselves, not only to set themselves apart from their competitors but also would enable them to get financing quickly and with less frustration? The panelists responded that business owners should ensure that the business’s accounting and finance are in order. It is important to know that underwriters don’t begin the process of their evaluation and risk assessment until ALL requested information, both financial and non-financial, is received. Underwriters need to see the complete picture when forming those analysis. If business owners are not prepared, they could run into problems at the 11th hour and causing significant delay or even denial to much needed capital.

At CFO Connections, we educate business owners on the 3 C’s to Better Credit:

  • Credibility – show lenders you are serious by doing your own due diligence and get your accounting and finance in order and up to date. This could include doing a public record search on any potential outstanding lien and updating corporate records and creating a short list of vendors that may be a good fit based on service level, industries served, terms, or even locations, ensuring accounting records are up to date and having a deadline driven month end closing schedule.
  • Cash flows – use processes and systems to build consistent and predictable cash flows. Lenders need to know that a business can make payments on its debt. When a business has these processes and systems, it speaks to its ability to service the debt, and therefore, instantly attracts lenders’ attention.
  • Control – use effective internal control to protect cash flows and assets used as collaterals. Having all the cash flows in the world doesn’t mean much if they were threatened by fraud and embezzlement because of lack of internal control. By the way, 42% of small businesses with less than 100 employees are more susceptible to fraud as a result of lack of internal control, compared to businesses with more than 100 employees. Losses suffered by these smaller businesses are twice as much (approx. $200k) as that in larger businesses (approx. $104k).

We provide these services to business owners to help them proactively manage growth in their business. We believe that in doing so, it puts them ahead of their competition and makes them instantly appear more attractive to lenders. When a business is credible, has cash flows and controls to mitigate fraud, it becomes easier and quicker for lenders to make the important decisions, saving them more energy to work on the next deal.

If you are working with prospects or clients that are struggling to provide you the information you need, we can help smooth out that process by helping them strengthen the 3 C’s. Please reach out to us so that we can better help you and your clients and prospects. E-mail to stella@cfoconnections.com

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