Beyond PPP: There’s Money for Small Businesses, But You Have to Be Credit Ready

Businesswoman discussing credit options with Lender; Image 2: Demonstrate a stable cash flow to your Lender

Small businesses seeking financing must be credit-ready before approaching lenders. Here are 6 ways to increase your chances of getting approved.

Key Takeaways

  • Lenders want to lend money to credit-ready small businesses
  • Many small businesses struggle to save and repay debts, making it difficult to qualify for credit
  • Consider both traditional and non-traditional financing sources
  • Download the Capital Connector mobile app, which connects small businesses to the best resources, grants, and contracting opportunities in real-time

There is funding available to small businesses that can demonstrate they’ll be able to use it effectively and pay the loans back, but convincing lenders you’re ready for that trust can be a challenge. These six steps will help you prove that your business is a good investment for any lender. 

1. Banks want to know that you can repay the loan on time. Demonstrate a strong credit repayment history.

Small business owners are notoriously bad at saving. A 2017 study found that 34% of entrepreneurs and small businesses had no retirement savings plans in place and any spare cash was funneled back into their business.  

On average, about 70% of small businesses have significant outstanding debts up to $100,000, and their poor savings translated into many struggling to make repayments on a regular basis.

Businesses that pay their bills on time, or pay early, will improve their PAYDEX credit score, which measures payment performance. A perfect credit score is 100, but any rating over 80 is considered healthy. 

Strategize ways to save more so you can repay debts on time. Here are a few tips that successful businesses use:

  • Monitor automatic debits from your business account. You can save a lot of money by ensuring that vendors are not overcharging you for services you don’t need (e.g., software subscriptions, unnecessary upgrades, etc.)
  • Avoid late fees and disconnection fees! The cost of late payments is high. They can also damage your credit score.
  • Minimize frivolous expenses. Do you reeeaaally need that daily latte? By some estimates, the real cost of that coffee could come to $15,000 in 10 years! If you must, figure out a way to turn that Starbucks trip into a client meeting. And you’ll be able to write it off!
  • Open a business savings account. It’s always smart to have a rainy-day fund. You’ll thank us later.

2. Use available collateral and strong cash flow 

Collateral can be cash, property, and the equipment you plan to purchase with the funds, all of which count as assets you can use as security against a loan. Businesses seeking to increase their collateral should consider Government-assistance offered by DC’s Business Capital Program (DC BizCap) such as the Collateral Support Program (CSP), which helps businesses cover operational shortfalls. 

The CSP program works by providing funds for deposit with one of their 11 participating lenders, including City First Bank of DC (a Capital Connector lender), who can help small businesses with contract financing through the Small Business Administration’s (SBA) lending programs.

DC BizCAP provides alternatives to traditional financing options to help DC businesses continue to operate during difficult periods. Businesses outside of DC should check with their local government agencies for similar types of programs available to them.

3. Don’t spend more than you earn: maintain a healthy debt-to-income ratio

Lenders consider a small business’s debt-to-income ratio to get a good indication of the economic health of that company. Aim for a debt-to-income ratio well below 36. This measurement is important to show lenders that you can pay off new loans reliably.

4. Get Your Books in Order: Be Confident in Your Numbers and Projections

Before approaching a lender, small businesses must get their books in order and be able to show:

  1. Accurate bookkeeping records, including detailed balance sheets and last quarter’s profit and loss statements.
  2. Recent tax records showing compliance with state and federal business laws.
  3. A comprehensive business plan describing products, target markets, staffing requirements, projected financial statements.

A smart business owner understands the importance of accurate bookkeeping. KPMG Spark has created an excellent real-time accounting dashboard to help small businesses track and document their finances. Getting your books in order will dramatically increase the odds of lender approval.

5. Here are alternative loan-based financing solutions:

Some alternatives to loans include:

  • Venture debt: Fortis Lux, offers tax-efficient, business risk-management solutions and financial business planning to help companies get credit ready.
  • Micro-loans & business insurance: Platforms like Curu can help businesses find leads.
  • Contract finance: Consider programs like City First’s Small Business Administration’s lending programs.
  • Small businesses may be eligible for R&D tax credits via programs like DC Main Streets, which has helped more than 900 businesses get started while creating over 7,500 jobs for the local community.

6.  Download the Capital Connector Mobile App

Capital Connector’s Mobile App helps small businesses find credit repair specialists or connect with lenders and government procurement opportunities to keep your business running. Our nationwide mobile app will be launching this quarter: Stay tuned!

At Capital Connector, we work with our strategic partners to connect businesses to credit sources including:

  • SMBX offering non-traditional sources of finance including raising capital through bond issues.
  • City First offers contract finance through the SBA lending program.
  • DC Green Bank offers an Open RFP process for businesses looking for funding for clean energy projects of more than $250K and a Commercial Loan for Energy Efficiency and Renewables Program. They are open to funding requirements for lesser amounts, too.

If you want help in preparing a strong loan application, Capital Connector can help you reach your goals.

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