You applied for a loan and the bank officer responded with the dreaded words, "I'm sorry, but..." and turned it down. Admittedly an unhappy scenario, it is not a unique one and happens to many businesses at some point. Fortunately, your funding resources do not end with the SBA and bank officers.
Why You Didn't Get the Loan
Banks most often deny credit because a business has:
Bad credit. As noted above, a clean credit record is crucial in both business and personal finances. Anything else sends the bank warning signals about your likeliness of repaying the loan in a timely fashion - or at all.
High debt-to-equity ratio. A typical ratio is three-to-one. Banks also look at other standard ratios for credit worthiness. In special circumstances, businesses that do not meet the usual standards may still be considered.
- Insufficient collateral. This is common for startup businesses that lack collateral or significant assets to pay back the loan if the company should experience hard times.
Beyond Banks for Funds
Commercial banks or savings and loan (S&L) institutions are not the only source of credit. Venture Capital Firms and Angel Investors number in the thousands, and they do not look at your credit score or collateral. Your business will simply be judged on your business model. Variables such as your market, products/services, selling price, cost of goods, and projected five year financials are of more importance.
In a nutshell, a bank is looking at a business and always asking: "What if they fail?". An Investor is looking at a business and always asking, "How much would I stand to make?". Over 80% of our clients work with outside investors as opposed to bank financing.
Clients sometimes underestimate the need for high quality professional documentation. They often feel that they can create the documentation on their own. While this may be true, in nearly every instance where a potential client has forwarded us documentation they had personally done, significant and often times glaring omissions in both text and financials were missing. Remember, Investors do not like work like the bank or SBA, who will send you home to complete missing sections of information they require. You have only one shot and therefore only one opportunity to ensure that your documentation includes not only your "pitch" but all variables that will need to be looked at.
The true beauty of our service is that the majority of our revenue comes from the 3% fee we charge on funding we secure for clients. Because this is our main revenue stream, we care about your documentation as much as you do, and our pricing on documentation reflects this. Keep in mind we only offer this pricing to clients whose projects we are given an opportunity to pitch and earn commission fees on. As an example, our Regulation D PPM fee is $500, yet a look at other firms show that documentation of this nature will cost you anywhere from $800-$3500, and in most cases their job ends there. We are more than just documentation, we secure funding for clients.
What is a Private Placement Memorandum?
Part of a Regulation D offering, which the SEC allows for small businesses, (LLC and Corporations only), it allows for a certain amount of company stock to be sold for a set price.
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