Prepare for Underwriting

underwriting

If you are planning to apply for financing to secure capital to open or expand your CrossFit Box, it is wise to prepare for the underwriting process. The most common forms of financing available to small businesses are equipment leases and SBA loans. Regardless of which form of financing that you choose to pursue, the underwriting process for most lenders is very similar. Consequently, it is recommended that an applicant take the following five steps in preparation to enhance the chance of success:

1. Focus on Personal Credit

All underwriting decisions are affected by your personal credit score. Take the time to secure and review a copy of all partners’ credit reports by logging on to either www.equifax.com or www.experien.com. First, review the report to ensure that all information is accurate. Next, you can file a dispute online for all inaccurate derogatory information. If you have many derogatory items, you should consider hiring a credit advocate to improve personal credit before applying for a loan or a lease. Credit scores over 700 are generally considered good personal credit by lenders in today’s environment, which will be viewed favorably in the underwriting process.

2. Incorporate

Check with your Secretary of State’s website to ensure the accuracy of the listing for your business. Make sure your time in business is correct and the ownership listed is correct. If any of the current owners have a credit score under 650, you should strongly consider removing them as directors of your company. As an alternative, these individuals can be shareholders with a written agreement defining their operating role(s) and compensation. All underwriting decisions will include a check with the Secretary of State’s website to insure that the corporation is in good standing. Keep your existing company open and avoid changing companies if possible because most lenders view three years ore more in business as the threshold for an “existing company.” Companies with less than threes years in business are viewed as a start-up business.

3. Focus on Your Business Credit

Once you have incorporated your business, Dun & Bradstreet (D&B) will automatically set up a file on your corporation. Contact their company to request a copy of your D&B report. Once you review it, it is important to update your report to include basic information, especially time in business and ownership contact info. If you intend to continue to seek credit long term, you should consider enrolling in D&B’s “Self-Monitoring Program.” This program is designed for a business owner to proactively work to improve your company’s “Paydex” score by submitting your existing vendors of choice who have given you credit terms.

4. Introduce Yourself to Your Banker

Every application will request that the applicant provide a personal bank reference. It is important that your business banker knows who you are and has a cursory understanding of your business. For this reason, consider using a credit union or a community bank because these institutions have more employee continuity, plus there are typically no monthly fees.

Strive to maintain a monthly account balance as high as possible. Underwriters will check your average daily balance and month ending balances of your most recent bank statements. Inquire to learn your bank’s business debt financing products and underwriting practices. Most banks will not consider a bank loan until you are in business for two or three years, however, they will consider a business credit card and merchant processing with a shorter time in business.

5. Research and Write your Business Plan

Most underwriting guidelines require that a business plan is submitted with the loan application. A well-written business plan will include a company overview, its unique product offerings, its management team, financial projections for two to three years, its startup costs and a competitive analysis. Lenders are particularly interested in studying your start-up costs and the anticipated source of funds required. Typically, a 10 to 25 percent equity injection is required so the business owners have “skin in the game.”

SCORE, a division of the Small Business Administration, offers free templates at http://www.score.org/resources/business-planning-financial-statements-template-gallery. It is unnecessary to pay consultants to write your business plan. Instead, take advantage of your tax payer dollars at work.

Summary

It is common business practice for large, successful companies to borrow money to expand their business through bonds and loans. Having access to capital at a cost less than the company’s operating profit is a key to good business practice. Since the underwriting process involves many of the same practices, it is wise to prepare yourself, your business partners and your business for the process. As Benjamin Franklin said, “If you fail to plan, you are planning to fail.”

 

By Business Finance Depot. For more information, visit https://businessfinancedepot.com.