What makes a good loan candidate? 

• What about credit scores?
  
  MYTH BUSTER: Checking your own credit score does not lower your credit score.  When lenders check your score over and over again, that does negatively impact your score. 
  
  * That is why it is imperative that you know your score, and make sure potential lenders know it as well before you apply.  Lenders will check, and they will find out your score, if you let them know your score upfront, they will give you honest feedback on your chances of receiving financing with their institution.  That way you know the likeliness, and then can apply or not apply officially.  This will help you avoid having too many inquiries which will further lower your score. 
  
  * There are some loan programs that are 100% based on credit scores, for example, with a good credit score you can get a small business loan for approximately $35,000 without any other application and without a business plan. 
  
  * There are other programs that allow some leeway in this area, make sure you are working with the right lender and the right loan program for your personal situation. 
  
  GENERAL RULE OF THUMB: increase your credit score as much as you can before applying, then make sure you are applying with lenders and for programs that allow some leeway and explanation. 
   

• How about collateral? 
  
  MYTH BUSTER:    Equipment is considered collateral, but it is not the best collateral source as items in this category tend to depreciate at a high rate rather than appreciate. 

             * Real estate is also collateral, but remember, equity is not real money and can fluctuate tremendously.  The larger the portion
             of unused equity you have, the better your chances.  Investment properties make better collateral, as lenders do not really want
             to take one's home that is a primary residence due to non-repayment. 

             * Cash is King - liquid collateral is the best, such as, CD's, savings, retirement plans. 

             GENERAL RULE OF THUMB: The best collateral is that which will not devastate your life, that typically appreciates rather than
             depreciates, and those which are secure and easy to liquidate. 

• Do  I have to invest in my business personally? 
  
  MYTH BUSTER:  Lenders will 100% finance your business from the start at a high rate. 
  
  * A lender is more apt to invest in you if you have invested in yourself.  If you are willing to risk YOUR money, they are more likely
  to risk THEIR money. 
   

• What about my savings & other income?
  
  * Lenders know that you will pay your rent, mortgage, buy food and other necessities BEFORE you will pay them; therefore, demonstrating savings and/or other sources of income to cover such necessities ensures lenders a better chance of repayment should your business not generate the expected income in the short-run. 
  
  * It is rare that start-ups are funded at a high level.  Even with a great business plan, a history is important. 
  
  GENERAL RULE OF THUMB:  Save money as much as possible, invest your own money in your business in the early stages, and make sure you have a back up plan to get through the first 6 months of business, at the very least, fully covering your basic necessities. 
   

• Business Plans
  
  MYTH BUSTER:  I don't need a business plan for my type of business. 

             * Yes, you do.  It is your job to convince lenders that you are a good candidate, and a well-written business plan is the method of
             choice in which to demonstrate that.   

             GENERAL RULE OF THUMB:  Business plans should contain the facts that prove you have a good business idea and you can
             make a go of the business.  The main factor in qualifying for a loan is simply your ability to pay it back, to pay it back, you must
             have a sound plan for the business. 

             For business plan guides, click on the "Online Resources" tab above and "Links and Downloads" on the left navigation bar. 

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