Security Finance Tips

Security Finance Tips is free guide about Financing for a small business is most typically secured through traditional sources like banks, savings and loan companies or credit unions. These institutions will use different methods to determine whether or not you and your business are able to pay back the loan before lending you the money. Sometimes, traditional institutions will not loan startups money and so the business owner seeks to finance the company in non-traditional ways.

Traditional Business Financing
Traditional financial institutions make loans to small businesses for a variety of reasons -- for start-up capital, the purchase of equipment or, perhaps, a line of credit to finance the acquistion of inventory. Such financial institutions will make their decision to lend money of wide array of criteria that include the following:

Ability and Willingness to Repay
You must be able to demonstrate your company’s ability and willingness to repay a loan. Your ability to repay essentially means that your business is generating enough positive cash flow to pay the monthly payment as well as cover your general operating expenses. This positive cash flow can come from your normal operations or from some other source like purchase orders or signed contracts for a specific job.

Lenders also like to see that you and your business have paid past bills and loans as agreed and on time. This is typically accomplished by reviewing your credit reports. Yes, all lenders will review the personal credit reports of the owners of a company as well as those of the business, if any. Lenders may also call on your suppliers and other vendors to see how you have paid them in the past.

Lastly, if your business is already carrying a lot of debt, lenders may baulk at your request. Lenders feel that you are simply working to repay loans instead of building the future of your company. The more you rely on debt, instead of equity, to finance your business the more risk you face and the higher risk for the lender. A quick look would be to divide total liabilities to equity. Anything 3.00 of higher is a big red flag.

If your credit or your business’s credit has blemishes, you have two options. First, if the blemish was based on a unique situation, say medical bills, explain this situation up front. Being honest with your lender will go a long way in building trust and credibility. Second, before applying for a loan, work diligently to repair your credit. I would suggest starting with the credit reporting bureaus first. If you then think this is outside your expertise or just do not have the time, contact an organization that can help. A quick search engine search is all you need to get started.

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