Money makes the world go round, yet it’s not discussed enough. Financial literacy is so important, especially for women entrepreneurs, so let’s talk about money. As a three-time woman entrepreneur, I have been knocked down, dragged out and left with a closed sign on my business’ door. Did I let it stop me? No, but it did define my next move.
When I had to close my business, I knew it was time to step up and make a difference. I felt called to educate women based on my knowledge and expertise in the lending industry, especially because money was left on the table, unbeknownst to most women. Most importantly, I learned a lot of lessons the hard way, so you don’t have to. I’m taking my accumulated knowledge and leveraging it to educate and make it easy and digestible to understand how a lender may view you, your business and your borrowing worth.
There are quite a few important things we were not taught in school when it comes to “adulting” credit and borrowing are two of them. When you think you have figured out how to raise your credit score to borrow money at cheaper dollars, you learn this is not the case in business borrowing.
Credit is the most misunderstood tool, and It is the number one tool that traditional bank financing uses. A credit score is not a simple number so let’s dive into common questions to break down the process.
Question 1: Why should we use a private lender and not borrow from our bank?
Traditional bank financing takes time and a lot of documents. Although they may have an aggressive “rate,” remember that interest is compounded just like a credit card. Business financing lenders use “simple interest,” which is fixed-rate financing without amortization or compounded interest over time. Your payment will always stay the same over the term. Why extend your personal credit when you can create a business trade line? If you want to buy or refinance a home, you do not want to be indebted personally to affect your debt-income ratio.
Companies like Coastal Kapital can fund borrowers on the same day, which means you do not have to wait for a month to put that new equipment or money to use right away. Most importantly, we do not report to personal credit we only report to business credit. We can keep this debt on the business only. and we only secure the asset you are purchasing, we do not file a lien or take additional collateral in most situations, and we can get you 100% financing with one or no payments out of pocket.
Question 2: Why don’t we just pay using cash?
Would you pay for an employee before they started working for you? Why pay cash for something that has not started generating income? Other people’s money (OPM) is the best way to grow, and there are ways to do it without giving away the equity of your hard work. Your money can be better used in other ways, like hiring and training a new employee or marketing for your expansion and growth. That makes more sense than paying for a depreciating asset with cash. Why not take your total tax deduction this year for the assets you pay over time? I am passionate about helping people build their dreams, but without the proper education, it is hard to see past a no, and even harder to recover from “paying cash.” Let’s explore the options before we have that cash outlay and save you from undercapitalization early. Even with credit issues, there are solutions, and someone is always ready to help you.
Question 3: How do business lenders look at your file and make a decision?
Business lending is the only way to start and establish business trade references and a business credit report. At Coastal Kapital, we can assist you with the education to make a qualified decision. First off, we like a good credit score, but we do not base our lending on credit scores. We base our lending on risk factors such as:
- How long has the business been established?
- Do you have a background in this industry?
- How much comparable debt has the client taken on in the past (installment loans)? Either business or personal will show the borrower has a comparable trade reference.
- How is the asset or money being used for the operation?
- Is it an affordable necessity and ensuring that it will not put the business at risk?
- How much revenue will this equipment generate?
- Are you buying an asset that holds value to the banks, or is this a non-tangible cash need, and what is the risk of that need?
The details of the transaction are much more important than the score. These are all things to consider as you prepare to borrow, but there are savvy ways to make the file work for you and the lender. It just takes the right advocate.
Question 4: How do we prepare to apply?
How much do you actually need? You can always expand, but it is hard to take away (remember depreciating assets?). Is the person you are working with vested in you? Make sure they ask questions and get a back story, the more you tell them, the more they can help you, so do not hold back.
Working with a private lender doesn’t have to be daunting and can be a great way to access capital. At Coastal Kapital, we are here to answer your questions and explore if we are a good fit to be your private lender. Coastal Kapital was built on partnerships and education for entrepreneurs, we are here to act as an agent to assist the choppy waters of business financing.