I occupy a narrow lane in the business consulting arena. Our three step program consists of:
- Pre-Loan Consulting
- Writing of a Business Finance Plan
- Loan Placements
In all cases my clients will ask me at the beginning of the consulting gig, “Hey Loan Doctor, what do you think my interest rate will be?” My answer is always the same, “It depends on a variety of factors but one of the main factors is the lenders assessment of your “credit profile.” (Other factors could include a lender’s competitors and the lender’s current loan demand.) The higher the credit profile the lower the interest rate and vice versa. It is important to note that your credit profile is not a specific number but in fact a judgment call on behalf of the lender. In other words two separate lenders may look at your company financials and come up with a different credit profile while looking at the same data.
In the three years I have operated my company I have placed loan clients with a factoring company, a commercial finance company, a micro loan company, a bank loan with an SBA guarantee and a conventional bank loan, (no credit enhancements in the form of a SBA guarantee. (Please note I have never placed a loan client with an on-line lender because their rates are obscene, I have a brand to maintain and a conscience to live with.)
To use car loan shopping as an analogy, consumers with the highest FICO scores will get the lowest rates and those with FICO score south of 600 will get the highest rates.
In my opinion, in the Inland Empire business loan market there are basically six categories of credit profiles. Each credit profile is occupied by a number of lenders who general quote rates in the same range.
- Starting best to the worst
- Excellent Credit Profile– Conventional bank loan, rates 5.25 % to 6.75 %
- Good Credit Profile– Bank loan with SBA guarantee, Rates 8.00% to 8.25%
- Average Credit Profile- Micro Loans, rates 8.50% to 10.00%
- Poor Credit Profile- Commercial Finance Companies- 11.00% to 20.00%
- Very Poor Credit Profile– Factoring Companies 24%-36%
- So Bad it Hurts Credit Profile – On Line Lenders 40.00% to 70.00%
Now I know what you are all thinking, “Hey Doc Gene, how do I improve my business credit profile to obtain the lowest rates? I have addressed this topic in numerous past articles so I won’t go into much detail for this article.
That being said , your perceived credit profile is a function of a myriad of factors including but not limited to; years in business, quality & depth of management team, quality of accounting systems, industry/target market trends, strength of value proposition, strength of balance sheet, income statement trends, collateral available, owner’s liquidity and owner’s FICO score.