Top 10 Factors Affecting Small Business Financing | SunTrust Resource Center

Grow Your Business

Top 10 Factors Affecting Small Business Financing

Top 10 Factors Affecting Small Business Financing
 

Many factors can compromise a small business financing decision. To have the greatest chance of success, you should identify the factors you can control and manage, as well as address variables beyond your control.

Here is a list of such factors:

Things You Can Control

  • A strong business plan for capital infusion.Produce a clearly written plan for how you will use financing to grow profits. Include the type of loan terms you need and build the loan specifics into your projected profitability forecast. Explain your business, how the capital will help it grow and how you will use the capital. Work with an experienced Service Corps of Retired Executives (SCORE) counselor who can help test your business case, sharpen your forecasts and articulate your growth plan. Writing down your plan will make it clearer when presenting it to others.

  • Accurate and complete application documentation. Most loans require time-consuming paperwork that can be hard to assemble. If you’re serious about pursuing financing, get the help you need to pull together the right paperwork, rather than take a chance and miss something that can jeopardize your chances. Work with a banker who can assist you with documentation of your loan and streamline the process.

  • Professional and credible financial statements.  A strong business with poorly documented financial statements can cause a lender to question approval. Most owners do not have financial backgrounds, so it is important to work with your accountant to understand and prepare balance sheets and cash flow statements in advance. Depending upon the size and working history of your business, many lenders will require both personal and business financials.

  • Working relationship.  Relationships play a big role in financing decisions, because the owner is ultimately the one who will have to deliver on the promise to pay and execute the plan. The more the lender understands you and your business, the better your chances of success. Build a track record with your lender, before you need money. For example, consider a contractor with an established track record in construction who wants to reposition her business as a player in the high-growth solar-power market. She needs additional capital to invest in training and equipment.  Since she has worked successfully with her bank in the past, she is able to obtain an SBA loan, even though the solarpower market is a new venture with no specific operating history.

Things You Can Manage

  • Collateral.  Traditional loans will want the owner to secure financing with collateral, which likely will be a highly liquid or saleable asset, such as cash, investments, a house or a vehicle. If your business does not have these tangible assets, an SBA guarantee will allow your banker to offer the loan regardless.

  • Capacity to repay the loan.  Lenders want some evidence that you can repay the loan. This requires global loan coverage, meaning enough cash flow to easily make the monthly loan payment. A banker would like to see 1.4 times the cash flow. An SBA-guaranteed loan can help companies with limited cash flow extend the term of a traditional loan from an average of four years to seven.

  • History.  Traditional loans require three years of business history. SBA loans can finance operating capital for growth companies and earlier-stage businesses that have only one or two years of financials.

  • Commitment.  Most business lenders want you to have equity investment in the deal. Traditional bank loans require a 25 to 30 percent down payment. With an SBA guarantee, owners can get a loan approved with only a 10 percent down payment.

Things You Cannot Control

  • Industry or Technology Risk.  Lenders simply won’t offer a loan to certain industries and technology-oriented businesses. Ask your banker to be upfront about these realities, so you don’t waste time pursuing financing that is out of bounds for your business.

  • Economic Climate.  Interest-rate fluctuations and credit availability are realities you must address as part of the financing process. Use your working relationship with lenders to talk through and anticipate financing needs. That way, you can take advantage of openings in credit availability and lower interest rates when they appear — even if the timing isn’t perfect for your growth plans. Proactive bankers will help you optimize unused cash from financing until you need it.

What you can and can't control
 

This content does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

Related

Investment and Insurance Products:

Are Not FDIC or any other Government Agency Insured   Are Not Bank Guaranteed  May Lose Value 

© 2018 SunTrust Banks, Inc

equal housing logoSunTrust Bank is an Equal Housing Lender. Member FDIC

equal housing logoEqual Housing Lender. SunTrust Mortgage, Inc

SunTrust, SunTrust Mortgage, SunTrust PortfolioView, SunTrust Robinson Humphrey, SunTrust Premier Program, AMC Pinnacle, AMC Premier, Access 3, Signature Advantage Brokerage, Custom Choice Loan and SunTrust SummitView are federally registered service marks of SunTrust Banks, Inc. All other trademarks are the property of their respective owners.

Services provided by the following affiliates of SunTrust Banks, Inc.: Banking products and services are provided by SunTrust Bank, Member FDIC. Trust and investment management services are provided by SunTrust Bank, SunTrust Delaware Trust Company and SunTrust Banks Trust Company (Cayman) Limited. Securities, brokerage accounts and insurance (including annuities) are offered by SunTrust Investment Services, Inc., a SEC registered broker-dealer, member FINRA, SIPC, and a licensed insurance agency. Investment advisory services are offered by SunTrust Advisory Services, Inc., a SEC registered adviser. GFO Advisory Services, LLC is a SEC registered investment adviser that provides investment advisory services to a group of private investment funds and other non-investment advisory services to affiliates. Mortgage products and services are provided by SunTrust Mortgage, Inc.

SunTrust Mortgage, Inc. - NMLS #2915, 901 Semmes Avenue, Richmond, VA 23224, 1-800-634-7928. CA: licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act, IL: Illinois Residential Mortgage Licensee #MB-989, Department of Financial and Professional Regulation, 100 W. Randolph, Suite 900, Chicago, IL 60601, 1-888-473-4858, MA: Mortgage Lender license #-ML-2915, NJ: Mortgage Banker License - New Jersey Department of Banking and Insurance, NY: Licensed Mortgage Banker—NYS Department of Financial Services, and RI: Rhode Island Licensed Lender.

"SunTrust Advisors" may be officers and/or associated persons of the following affiliates of SunTrust Banks, Inc.: SunTrust Bank, our commercial bank, which provides banking, trust and asset management services; SunTrust Investment Services, Inc., a registered broker-dealer, which is a member of FINRA and SIPC, and a licensed insurance agency, and which provides securities, annuities and life insurance products; SunTrust Advisory Services, Inc., a SEC registered investment adviser which provides Investment Advisory services.

SunTrust Private Wealth Management, International Wealth Management, Business Owner Specialty Group, Sports and Entertainment Group, and Legal and Medical Specialty Groups and GenSpring are marketing names used by SunTrust Bank, SunTrust Banks Trust Company (Cayman) Limited, SunTrust Delaware Trust Company, SunTrust Investment Services, Inc., and SunTrust Advisory Services, Inc.

SunTrust Bank and its affiliates do not accept fiduciary responsibility for all banking and investment account types offered. Please consult with your SunTrust representative to determine whether SunTrust and its affiliates have agreed to accept fiduciary responsibility for your account(s) and if you have completed the documentation necessary to establish a fiduciary relationship with SunTrust Bank or an affiliate. Additional information regarding account types and important disclosures may be found at www.suntrust.com/investmentinfo.

SunTrust Robinson Humphrey is the trade name for the corporate and investment banking services of SunTrust Banks, Inc. and its subsidiaries, including SunTrust Robinson Humphrey, Inc., member FINRA and SIPC.