Your company has a promising future. You’ve worked hard, made smart choices and navigated through some choppy waters. What you need now is capital. The good news is many lenders are actively seeking new opportunities to put their money to work. While every situation is unique, here are 10 tips to help borrowers be more successful when applying for credit.
1. Reach out early
The best time to approach a lender is before you need capital. Build a relationship and educate a potential lender about your business prior to applying for a loan. If you wait until you need money in a hurry, financing options may be limited.
2. Treat the lender as a strategic supplier
You and your lender must work with a set of shared goals. Smart borrowers take the lender’s perspective into account while trying to find two-sided solutions when financing challenges arise.
3. Be transparent
Trust underlies all credit relationships so be upfront with a lender about any challenges. Don’t allow a lender to invest time and resources into the underwriting process only to find that there are discrepancies in the information provided. Smart borrowers see financing challenges as opportunities to demonstrate their grasp of the issues facing their business.
4. Tell a compelling story
Tell your story in a way that highlights successes and acknowledges challenges. Create a forward-looking business plan and organize all financial statements. Lenders understand the impact of the economic downturn on the lawn and garden industry. They need to see how you overcame obstacles and solved problems—and how you plan to move forward.
5. Sweat the small stuff
Every interaction with a potential lender carries a lot of weight. Mistakes, even if they seem inconsequential, can cause the lender to lose confidence in your business. That’s why it’s important to understand all the key terms in covenants, contracts and credit documents. Be prepared to show specifically how your company will meet its commitments. One effective way to facilitate the process is to put a cover letter on the business plan that includes important dates and obligations.
6. Find a lender who understands your industry
A Green Industry-savvy lender will have an understanding of a reasonable business plan as well as the overall climate in this industry. That knowledge will be helpful in structuring the financing solution and maximizing the credit available to the borrower.
7. Communicate, communicate, communicate
A lack of communication can damage your financing prospects. From day-to-day details to big changes, keep the lender informed. If an unexpected event occurs contact the lender as soon as possible. Be prepared to explain its impact on your ability to meet your financial obligations.
8. Think like a lender
Every business leader should think with the mindset of both a borrower and a lender to get the most out of the relationship. Whether the discussion involves a credit line increase or a new competitive challenge, understanding the lender’s thought process and considerations will lead to a more fruitful interaction. For example, the “amend and extend” process can be complex. Smart borrowers have the foresight to contact their lenders 18 months before the loan comes due to make adjustments.
9. Know competitors’ financing structures
Learn about the financing structures of your peers. By taking the time to do this homework, borrowers can improve their discussions with lenders while increasing the chances of finding a workable financing solution.
10. Optimize cash flow
Cash flow is king. A lender needs to understand all monies coming in and out of the business as well as payment histories. To impress the lender, demonstrate the ways you’re trying to increase cash management efficiencies.
Be mindful of the process
Smart borrowers can make their quest for capital more successful by being mindful of how they present themselves to lenders. As you can see, there are many factors beyond cash flow and credit history that have a big impact on the outcome of a credit application.
With careful preparation, borrowers that work in a spirit of collaboration with their lenders can boost their chances of success. Look for lenders that are flexible, have enough capital on hand to support your future growth, and have the industry expertise to understand the true value of the collateral used to secure loans. That will help maximize the amount of financing they can extend to you.
Mike Horak is the president of the Outdoor Products Group within GE Capital’s Commercial Distribution Finance business. Click here to request more information about GE Capital.