July 6, 2017
The Del Mar College Small Business Development Center (SBDC) would like to share some insight from our resource partners to our clients. We teamed up with Laura Leal-Estrada, Market Manager, for our local micro-lender, LiftFund, and asked for answers to some frequently asked questions. A few snippets from our conversation are listed below and the full list of questions and answers can be found at http://www.delmar.edu/sbdc by selecting the “BLOG” tab.
Question – What are the top three things lenders look for when considering a lenders package from a small business:
1) Capacity – The borrower’s ability to pay back the debt and clearly articulate the amount of money needed and for what purpose i.e. equipment purchase, real estate
2) Credit – Is the applicant current on all debt such as home loan, car loans, student loans, child support, IRS (have they taken the time to get their credit information from all three credit reporting agencies prior to applying for a loan?)
3) Financials – Are they prepared to provide copies of their bank statements, tax returns, purchase order requests, purchase contracts, purchase agreements, business plans and financial projections?
Question – How long is the approval/rejection process for a lender?
For traditional financial institutions a response can take anywhere from one to two weeks.
For a micro-lender such as LiftFund, once all the financial documents have been received, a provisional authorization to move forward for a loan request is given within 24 hours. Once the loan is authorized to move forward, and the required documents have been submitted by the applicant, an approval or declination will take place within 48-72 hours.
Question – Is there a minimum credit score that lenders prefer for consideration?
The credit score depends on what type of institution you plan to use. Alternative lenders such as LiftFund, a micro-lender, start with a credit score of 500 or more, whereas credit unions and banks start with a credit score of 630 or higher. All lenders will review the payment history, as well, to determine the risk factors.
Question – What are the top three most common obstacles you have seen arise with clients?
1) Credit – Most commonly includes IRS liens, court ordered payments such as child support and civil judgments for unpaid obligations
2) Co-mingling personal and business financials – Some business owners intermingle their personal banking and business banking with deposits and/or payments
3) Financial documents – Not understanding the importance of maintaining of profit and loss statements, income statements and balance sheets
Question – How can an entrepreneur help their lending chances? How can they “stand out”?
The applicant should have industry experience and a clear understanding of their business needs. They will have done market research regarding the business they want to open and demonstrate how it will meet the needs of the community they will be servicing or catering to. Also, they should be prepared to provide the business legal documents (LLC, sole proprietorship) as well as financial documents.
Question – Who is ultimate decision maker as far as approving lending where LiftFund is concerned?
Ultimately the underwriter will provide the final decision whether to approve, decline or offer a counter offer for a loan request. However, the Business Development Officer and the lending assistant are the client’s best advocate. Often times a final approval is not just the applicant’s ability to pay back the loan but justification from the Business Development Officer as to why the loan should be approved by the underwriter.
Question – What kind of collateral does LiftFund take when considering lending approval?
Typically, the equipment the borrower plan to purchase will be used to secure the debt. Alternative collateral options can include the borrowers existing equipment, furniture and fixtures, personal vehicles without a lien, non-homestead real estate properties and personal belongings, such as jewelry, that have been appraised and retain their value.
LiftFund for over 20 years takes great pride in meeting their mission to help entrepreneurs build success and a pathway to fulfill their dreams through education and business loans.
This piece was written for the Del Mar College SBDC July – September 2017 newsletter. To view the entire newsletter, please visit dmc122011.delmar.edu/sbdc/newsletter. If you want to find out more about our services, please visit http://dmc122011.delmar.edu/sbdc/index.html.