What to Expect in 2013:

As 2012 passes us by and 2013 becomes reality, Business Owners are wondering what changes will take effect be in 2013 compared to 2012. Our answer is simple, a lot of the same old same old.

 Business Loans:

  • Lenders are always introducing new programs to entice Business Owners to apply, but the lending guidelines will not change. That is, as our April 18, 2012 article ( states, the 5 C’s of credit will very much be in effect. Lenders will continue to be strict in order to minimize their risk.

Business Certifications:

  • While lending guidelines continue to remain tight, Business Owners SHOULD always be thinking of ways to grow their customer base. Certified Companies will always have more opportunities then non-certified companies. That is, the Government has reserved new opportunities only to those businesses that are certified. Intern, those who are not certified will not be able to bid on that job. Here is a link to our Certifications page, we hope you will find it helpful. 


Loans for New and Existing Businesses

The subject of our first article was about the 5 C’s of Credit (Character, Capital, Capacity, Collateral, and Conditions). In addition to credit, lenders are looking for businesses that are financially stable, which I will discuss below.

Existing Businesses

Lenders prefer to do business with existing companies due to their multiple years in business. Lenders prefer this route because they can track the progress an existing business has made over the years, which is done in multiple ways:

  1. Collecting previous years tax returns
  • Tax returns are the only official document which allows the lender to see how much a company has made in the past. Cash flow is a term used by lenders to determine pay back ability. Gross receipts will show the sales of a company, but the net income will show the companies profit after expenses.
  • In some cases, companies are making more then is being reported to the IRS. A few weeks ago, a client who owns a coin laundry business contacted me for a loan. Client claimed to make over $1,000,000 in sales. His tax returns however showed revenues of $20,000 and a net loss of ($10,000). When I asked the client what happened to the $1,000,000 in sales, he replied “we are a cash business and don’t report the income.” As you can imagine, this was a problem. Since he is receiving cash, he is not reporting the income to the IRS and therefore it is not being reflected on their business tax returns. Since the tax returns are the only reputable report to verify income, the lender can not take his word on his total sales.

        2.  Financial Statements

  • The profit and loss statement: During any given year when the company has not yet filed for their taxes, the profit and loss statement will allow us to see the year to date revenues and expenses of the company. This will give us a good idea how the company pairs up compared to previous years. I would ask this document to be prepared by a CPA  for authenticity.
  • The balance sheet: It will give us a good idea where the company stands with their assets and liabilities thus giving us the eventual net worth of the company. This document is important to see how the company manages its debt. It will show all assets compared to its liabilities giving us either a negative or positive. A negative net worth tells us that the company has more debts then assets which means they owe more then they own. A Positive net worth tells us the company owns more then it owes. This should also be verified by a CPA.

The above mentioned items will allow us to get a grasp of a companies pay back ability. There are however, other documents needed while processing a loan. They include but are not limited to:

  1. Business debt schedule
  2. Personal financial statement
  3. Personal Tax returns

New Businesses

Since new businesses can’t provide tax returns from previous years, it is crucial to have excellent credit and a sound business plan when applying for a loan. All new business owners must realize that having great credit is crucial when requesting for financing. The following two items are just two of the most important items needed for New Businesses. However, when getting a loan package together there will be additional items requested.

Needed Items

   1.  Credit

  • As our previous article states, credit will determine how risky you are to a lender. Hence, having a low credit score will give a lender the impression that you are not trustworthy. Therefore, understanding your credit report, how much you owe on credit cards relative to the limits on those cards are important. Lenders will take in to consideration how much debt an individual already has. The lower debt you have the less of a risk you are to lenders.
  • Also, having a high credit score does not necessarily mean that you will get approved. The days of approving based on your score are over. Lenders now are more interested on what makes up your credit score and will want to make certain that your credit report is clean.
  • Example: I received a call from a client who had just moved to the states a few years ago. He does not have any credit cards but does have a vehicle he is leasing. He has never been late on his payment. His credit score is a 720, a respectable score by today’s standards. The client wanted to start a business with some money he had been saving and inquired about a Small Business Loan. When I asked for his credit report, I saw that it wasn’t much of a report. The only reported credit he had was the lease on his vehicle. I advised the client not to apply for a loan, but rather begin building his credit by obtaining small credit cards. By using and paying them off every month, he would have established credit slowly. He did however decide to apply for the loan and not take my advice. He was declined!
  • Why did this happen? The main reason for the decline was due to lack of credit history. The client did not have enough credit at the time for an approval. Lenders are looking for business owners to have a good amount of years behind them borrowing and paying off debt.

2.   Business Plan

  • A business plan is crucial for start up companies because it is the only way to show a lender how they will be repaid. Thus, creating a sound business plan will be crucial in obtaining any type of financing. A business plan should explain everything about the business and its owners. A business plan can be the determining factor of an approval or a decline.
  • Creating a Business Plan takes effort and time. Our last article outlined the Table of Contents we feel is crucial in creating a great business plan.
  • Please visit our business plan link on our website

Paul Mazbanian (2011 SBA Young Entrepreneur of the Year – Los Angeles District Office)
SBC Lending

What You Need to Know About Credit

For the past 5 years, we have been assisting clients in starting, sustaining, and/or expanding their business. During this time, the number one concern for the majority of our clients has been about credit. “My credit is bad, can you help?” and “there are a few negative items on my credit that I paid off, what can I do?” are just two of the many common questions every individual we have worked with has and must know the answers to in regards to their credit.

What do you need to know about credit?

It is all about risk. Credit is the most important tool you have available to you. It is so important that it can drastically effect your future, both in positive and negative ways. Having a good credit score is so crucial that a 5-10 reduction in your score can have a significant impact on what you are trying to accomplish.

What is credit and why do we need it?

Credit is a tool an institution such as a bank, auto dealer, department store, etc. uses to determine the risk of an individual. This risk assessment has a score attached to it. There is a special formula that is used to calculate each individuals score and this score that is given to each individual allows the creditor to either approve or decline based on an individuals past performance. Aside from the score, there is a credit report highlighting the details of your credit, which is directly associated with your score.

  • A low credit score of 540 automatically tells a creditor that there is something wrong. Typically, it will mean that an individual borrowed money from a credit card and has been late multiple times or they simply neglected to pay as promised. It may also mean that their vehicle was repossessed due to non-payment.
  • A high credit score of 740 usually tells a creditor that this person is trustworthy and pays all their debts on time. Lenders love to deal with people with great credit scores because they are low risk.

So what can you do to fix your credit if it is low?

  • First: Get your credit report and begin reviewing it. There may be items on there that do not belong. For example, credit card balances that have been paid but still show as a balance or a medical bill which you paid but was never reported as paid. These items can truly hinder your score, which is why printing your report and understanding it is the first step.
  • Secondly: If there are any items falsely reported begin a call of action. List all wrongly claimed debt. If you know that you have paid that debt, get a copy of the receipt and call the creditor. If you are able to prove to them that they have made a mistake, then ask them to give you a letter stating that it has been paid.
  • Thirdly: Take all letters proving your payment and send it to each credit agency. Once received, it will take about 30 days for the changes to be made and you will see an increase in your score.
  • Fourthly: If you borrowed money from a credit card and were unable to make payments for any reason, it has probably been sent to a collection agency or it may have been charged off. A charge off is the worst possible mark you can have on your credit. It means that attempts to collect the funds were tried over a period of time but were not and the creditor has given up and reported it as a loss in their books.

So what do you do at this point?

  • Depending on your current financial status you would have to think about how to make amends with these lenders. The only way to do that is if you contact them and see how much of that debt you can pay down. If you owe $25,000 in debt and that amount has been charged off, then you would want to call the lender and ask them to either put you on a repayment plan or to settle it for a lower amount.
  • It is your duty as the borrower to pay back the money they trusted you with in the first place. The only way to increase your credit score is by tackling these issues one at a time.
  • A creditor would prefer to get something back rather then nothing and it is always better to have a “settled” on your credit report rather then a charge off.
  • Example: If someone borrows $100 from you and promises to pay you back within 3 months and doesn’t do so, you would likely not trust that person again. In your eyes that person’s character has been tarnished. A few months go by and your friend calls you to apologize and offers to pay $50 of the $100 balance. Would you take it? Of course you would, because recovering some of the money rather then no money is always better. The same philosophy is applied to credit. It’s all about trust and your history along with your credit score proves how trustworthy you are.

What is a good credit score?

  • We are always asked by clients “what credit score do I need to qualify?” Our answer: The credit score is important, however lenders are not looking at the credit score these days. They are looking at the report and what makes up the credit score. The break down is as follows: Anything below a score of 660 is in the red, scores ranging between 660- 699 is average, and anything above 700 is very good.

A friend of mine just moved to the United States from Europe and over the past year he has tried establishing his credit. His credit score is currently above a 700. Does this mean he has good credit? Sure it does, but only for the 1 year he has had available credit. Lenders are also looking at the longevity of an individual’s credit history. Even though my friend has a 700 credit score, he will likely be declined if requesting a loan of some sort. That is because creditors do not have enough information or history to take make a good judgment.

In closing, remember that it is all about risk. Less risk means more money, higher risk means less money. Minimizing risk is key!

Paul Mazbanian (2011 SBA Young Entrepreneur of the Year – Los Angeles District Office)
SBC Lending