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Financing Your Business
Michigan State University did a study in 2011 about small business needs and capital access barriers in a region of rural Michigan. What they found in Michigan is pertinent to Alabama.
The Michigan State researchers asked lenders about their primary underwriting criteria.
- Nearly all emphasized collateral as a primary metric to assess business loan applications.
- Lenders also looked at actual and expected cash flows to cover current and new debt.
- Several lenders mentioned credit history.
- Some mentioned that they take into account the growth of the industry sector of the business that is seeking a loan.
The Michigan State researchers asked the lenders about common issues that impede loan approvals.
- Lack of collateral was most commonly indicated.
- Lenders also said they take into account lack of business acumen and follow-through by businesses and insufficient cash flows.
- Lenders pointed out that small business owners often lack sufficient financial records to document cash flows and are unrealistic about pro forma cash flows.
[Source: Understanding Small Business Needs and Capital Access Barriers in Northern Lower Michigan, Michigan State University, Center for Community and Economic Development, March 31, 2011, p. 23.]
AERN can help you get your business’s documentation in order before you approach a lender. If you are prepared with good answers, you are more likely to get a good hearing from a lender.