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Financial advice…

You can't afford to ignore

February 25, 2014
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Loans and credit score advice

A Q&A with Jim Phelps of Capital Equipment Leasing Inc.

Q: What’s new in the financial world since last year?

A: Credit is easier to get. However, you may notice that interest rates are starting to creep up. Historically, interest is still at the lowest rates in years. I remember a bumper sticker on a real estate agent’s car in 1972, “Happiness is 6% interest.”

Q: What do today’s car care business owners need to know if they are looking for a loan? (The question you asked doesn’t really fit the structure of how he answered the bullets)

A: I’ve said this before and I think it bears repeating:

  1. Poor personal credit.Most businesses are closely held or have a limited number of shareholders. In those instances, a personal guarantor is always requested. You must take care of your personal credit as well as your business credit.
  2. Not enough cash flow. This is usually demonstrated by the average daily bank balance. Many businesses try and show little or no profit for tax planning reasons. That may be good for reducing tax liability, but when you deal with a lender, they want to see net worth and enough extra money above operating costs to service the loan or equipment lease. Sometimes your CPA can be “too good.”
  3. No experience or not enough time in business. It doesn’t make sense for a garage mechanic to start a restaurant. ... Length of time in business also demonstrates staying power, so the longer you are in business the better chance of getting a loan.
  4. Business shows a negative net worth.
  5. Business shows operating losses. One year may not kill you. It will hurt you. Several years of operating loses will kill you.

Q: What do today’s car care business owners need to know if they are looking for credit score information?

A: The credit score you get from the free credit score services are not accurate nor necessarily a true reflection of the credit score that lenders use. Various lenders have their own scoring system and credit models created for them by the credit reporting agencies. Those agencies make it clear that we are not to share that information with the applicants. The best you can do is to follow the steps outlined above. Also, try to keep your revolving credit card debt limited. Lenders are concerned if you show a lot of credit card debt. Typically you should have no more than $30,000 to $40,000 of credit card debt and have used 50 percent or less of that credit limit.

Q: What do today’s car care business owners need to know about the importance of good record/book keeping?

A: Good record keeping is very important. You can secure an equipment lease based upon your time in business, but generally that is limited to companies that are two or more years’ time in business. The longer you are in business the more you can secure, usually up to $100,000. However, we will want to see the last three months’ business bank statements to show that you have the cash flow to make the payment. You have to run all of your receipts through your bank account. If you want a major loan from a lender or a lease over $100,000, you will have to present financial statements and tax returns. The better those look, with backup information, the better your chances of approval and the better the loan/lease terms.