Anyone in the business of equipment leasing or commercial lending knows that things have changed dramatically in the past several months. For a company trying to acquire working capital or permanent financing, submitting a “clean” package is important now more than ever.The sub-prime meltdown has had negative repercussions throughout the credit markets. As a result, underwriters across the country have tightened up credit standards. Business loans and equipment leases that were “slam dunks” for approval last year are now being turned down. For example, many lenders require business owners to have a minimum credit score of 675 to qualify for loans. (It used to be much lower). Other lenders won’t even consider funding start-ups even if the principals have extensive experience in the industry. Commercial loans and equipment leasing transactions are still being closed but a much lower approval rate because the rules have changed dramatically.It all sounds pretty bleak, doesn’t it? While it’s tougher to get the capital you need to grow, there are things you can do to increase your chances of qualifying for a loan or lease. it is critical that the package of information that is reviewed by the underwriting department be organized, concise, and complete. Here are some suggestions that will help:Check your credit regularly and take steps to improve your score:Underwriters have always placed a lot of importance on credit scores because it reflects the debtor’s ability to take care of obligations in a timely manner. With lenders as nervous as they are today, a high credit score is even more critical. There are ways to check your score on a regular basis such as logging on to www.annualcreditreport.com and running a credit report. Carefully review the information. In a 2004 study, it was found that 4 out of 5 credit reports contain errors that can be detrimental to you credit standing. These errors include, but are not limited to:
Inaccurate personal information such as wrong social security numbers, inaccurate birth dates, and out-of-date addresses
“Closed” accounts listed as “open”. For example, a student loan paid off years ago showing delinquent.
The same mortgage or loan listed twice.
Major loans or mortgages that have been paid off or timely serviced not listed at all.
If you find an error on your report, write a letter or e-mail to the credit bureau. The bureau is obligated to contact the creditor who supplied them with the disputed information and then respond to you within 30 days. If you are unhappy with how the claim is settled you can ask to have a brief written explanation added to the bottom of your credit report.To improve your score, you need to take steps to resolve any items that are showing up as delinquent and those in which a judgment or lien has been filed. Make it a priority to pay credit car balances in full each month rather than making the “minimum payment”.If you are credit-challenged, find a co-signer:Lenders will be more likely to approve the business loan from an applicant with below standard credit if the debt is guaranteed by someone who is financially stronger. The guarantor can be a family member, friend, or business associate. To motivate someone to co-sign on your loan, consider paying a guarantee fee to the individual or perhaps an ownership position with the company.Pledge additional collateral with the lender or lessor:Some lenders who might otherwise turn down your application for a business loan or equipment lease may change their minds if you increase the collateral base. This might give the decision-maker or loan committee with an added comfort level in the event things to south. Other collateral might include specific assets from another business that is free and clear, rental property, or equity in a personal residence.Make sure all the information required with your application is complete and accurate:Nothing slows things down in the approval process more than incomplete information. If your tax return isn’t completed and it’s past April 15th, get your tax accountant on the ball and get it done. make sure you provide an up-to-date interim financial statement. Always keep your personal financial statement updated. For unusual or non-recurring items, make sure to provide an explanation in notes to the financial statements. Lenders also like to see the business loan or equipment lease applicant employ an efficient accounting system that provides information in a timely manner.These are just a few of the ways you can bolster your chances of getting credit during a period in our history where it can be very challenging even for the most deserving.