Small business lenders often work with clients who may be just shy of meeting their institution’s eligibility criteria for commercial loans. Alternatively, they may have had to decline their client for traditional financing, and want to ensure they can get the funds they need to keep growing. That’s why one of the leading questions we get from lenders is, “How do I know if my clients are eligible for your loan products?”
It’s simple and easy to determine whether your clients and their businesses are eligible for automatic approvals for our loan products – and determining eligibility takes just about two minutes!
Our five key criteria for automatic approvals
You’ll know immediately that you can move forward with a recommendation for our loan products, when your small business clients and their businesses meet the following five criteria for automatic approvals:
- For automatic approval, we require that businesses have been in operation for at least two years. We’ve determined this to be an appropriate demonstration that they’ve successfully made it through startup challenges and understand what it takes to run their businesses. This point can be documented several ways, including from entity-filing documents, tax return records, bank account statements and others.
- Your clients have credit scores of 640 or higher. Responsible borrowing – demonstrated by making on-time payments for at least the minimum required amounts – is a key indicator of future successful credit management. A credit score of 640 or higher is a great indicator of both how well clients have managed past debt obligations and the likelihood that they’ll successfully pay back new debts.
- Even if owners and businesses have historically shown that they manage debt well, as lenders, we also look at whether they can handle additional debt. We use tax returns to make this determination and for automatic approvals, we require a 1.0 debt-service-coverage ratio. We calculate this by using the “earnings before interest, depreciation and amortization” formula (also known as EBIDA). With this ratio, we can determine whether businesses have the capacity to take on additional debt and repay the minimum monthly payments on the loan.
- Before providing automatic approval, we also review financial documents to ensure that businesses generate at least $120,000 in annual revenues. This amount demonstrates a commitment to running operations as businesses (as opposed to hobbies or “side hustles”) and that owners are putting significant effort into sustaining and growing their businesses.
- There are no open tax liens or judgements. An area of financial distress for many small businesses comes in the form of tax payments. When those payments aren’t made on time and in the appropriate amounts, tax liens and judgments may be placed on business property. For automatic approvals on our loans, businesses and their owners must be free of tax liens and judgements.
When your clients meet these criteria, they have all the basics needed for an approvable loan, which means that it’s highly likely that they’ll get the funds they need!
Here’s how one bank partner set their client up for success
Recently, a partnering bank was approached by a client who needed a loan but who didn’t meet the bank’s eligibility criteria for commercial loans. Before referring the owner of this growing “paint-and-sip” studio to us, the bank representative used our automatic-approval criteria to prescreen the applicant and business.
For both the bank and the small business client, using the automatic-approval criteria proved to be a quick and easy way to increase confidence that a loan approval from us was a viable and achievable goal. And, this was indeed the case: The client received an approval within two business days and is now on track to receive the needed funds within five business days.
As a result, the bank retained the client’s business and the client is on the way to preparing for the studio’s upcoming busy season.
Here’s what to do when clients don’t meet all of the automatic-approval criteria
There will be times when you have clients who meet many, but not all, of the automatic-approval criteria. The great news is that even in these cases, we’re able to help the business owners shore up their financial picture to help them become eligible, so we encourage you to refer them to our business advisors.
When a business owner isn’t loan-ready, we’ll work with them over several months to improve their financials. We can help them strengthen their businesses, from offering tips to raise credit scores and improve financials to teaching them how to better manage cash flow.
We also provide marketing advisement, tools and resources to help increase revenue and customer retention, too. And we work with small business clients to address other issues that they may not realize are compromising bottom-line performance, from human-resource issues to bookkeeping concerns and more.
In addition, our services are offered at no cost to your small business clients. And, when possible, we may even be able to help them find funding that can bridge shorter-term financial needs until they qualify for conventional loan products.
Working together with you and your clients, we can help you build loyalty and retain your small business clients while better positioning them and their businesses for long-term success.