Business Loan Guidelines

The following information is provided to clients who are seeking assistance with financing from a commercial bank, mortgage company, SBA lenders, Business Development Finance Corporation and other forms of micro loan programs available (i.e. PPEP Microbusiness and Housing Development Corporation, Chicanos Por La Causa and Microbusiness Advancement Center).

Each of the above lenders bases credit decisions on the evaluation of the following five (5) "C"s that pertain to the loan applicant.  These 5 "C"s are defined as follows:

# 1: Character
This is the first evaluation by a lender in reviewing a loan request.  The applicant is evaluated on the basis of how well the person(s) has handled his/her personal and business credit in the past with other creditors. As part of the lenders' requirements, personal credit reports will be ordered and analyzed by each and every lender.  Individuals may order these reports from several reporting agencies, including TRW, Experian, Equifax and others through Credit Data Southwest, P.O. Box 2070, Phoenix, AZ 85001 at 602-528-7785 or through www.experian.com/yourcredit.  In addition, there is a local office in Tucson at 1202 N. Venice, 520-323-1922.

To properly provide client assistance with potential business loans, we ask that each business owner share a copy of his/her personal credit bureau report with the business analyst within the first two meetings.  This information will remain confidential.  If a business loan is not being sought, this information is not requested.

#2: Capacity
This is the second evaluation by a lender.  The evaluation is based on the ability to repay the full amount of the loan request within a reasonable time period on agreeable loan pricing, terms and conditions. This will include a full "cash flow analysis", based on combined business and personal income resources less total expenses. This requires the applicant to provide copies of the following:  business financial statements for three years; personal and business income tax returns for the past three years; a current interim balance sheet and profit and loss statement on the business; current personal financial statements on the owners.  In addition, the lenders will be requiring monthly projections for at least two - three years.

#3: Capital
This is normally ranked as the third most important evaluation.  A loan applicant's personal and business balance sheets will be analyzed to determine the strength and liquidity (cash/near cash assets), hard assets (real estate, equipment and investments), leverage condition (debt to net worth) and tangible net worth (minus intangible assets such as goodwill). The historical ratios and trends will indicate how conservatively and successfully the individual and the business have been in managing financial affairs.  This will also tell the lender how much cash the applicant has available to invest into the proposed project. Most non-real estate projects require 30% cash infusion from owners.  Real estate projects require lower cash infusions of 10% -20% from owners due to the hard assets which minimizes the credit risks to the lenders.

#4: Conditions
This is usually the fourth assessment in a business loan request. The expertise and management skills of the owners will be assessed to determine their strengths and abilities to handle a multitude of risks on a daily basis and long term commitments to successfully operate a business on a profitable basis. In addition, other risk factors will be evaluated such as the product, market niche, industry, technology, competition, economy, employment, government and other external conditions that may affect the business decisions.