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It is quite a process when you apply for a business loan at the bank or credit union. A lot of business owners think that financial institutions are asking for the world when they try to apply for a loan. Some people still remember their mortgage application process few years ago when “no income” and “no documents” loans were the norm. Those usually feel frustrated when they are applying for a business loan today. I’ll give you a few tips of advice about what you should know and look for when applying for a business loan.

First of all you have to put yourself in a financial institution’s position for a minute. Bank or credit union is in the business of lending not investing, which means none of the financial institutions will be excited about your start up or business that’s been around for less than three years. You do need track record of stability and historical cash flow to prove that business does have and will have the ability to repay the loan. This leads us to the most important factor in this process – cash flow.

Cash flow and debt service coverage. Positive cash flow, profit, surplus whatever you call it is the most significant aspect of your loan approval process. If your business is able to demonstrate last three years of profit on paper 50% of the approval is done. Pay attention that I said it has to be on paper – federal tax returns, accountant or CPA reviewed or in some cases audited financial statements are what counts. Don’t try to give a story, “oh, my business is making money but I don’t show it on paper” or “I don’t have my federal tax returns and I am definitely not getting reviewed or audited financials”. Those two statements will get you a quick decline. To measure positive cash flow and repayment ability financial institutions use a ratio called debt service coverage (DSC). Business needs to show at least two to three years of 1.25x DSC. DSC is calculated as followed annual net operating income (NOI) plus depreciation, amortization and interest divided by total business annual debt service. For example if business NOI wit add backs is $375,000 and the total amount to make payments on business debts is $265,000 the DSC will be 1.42X which is good. There are also plenty of other ratios and test methods but DSC tends to be the key when it comes to small business lending. Continue reading ‘Applying For a Business Loan – Cash Flow, Collateral, Credit Score’ »

Checking the cash flow is something that deserves extra attention in an organization. Cash flow is the balancing act that balances financial assets of the organization in a way so that the organization can never suffer through financial crisis. Cash flow management is needed in the organization to determine the future expenses like whether to buy the articles, which you have planned before or to plan out the things like should one buy things in extra? It is the management of cash in a way that organization or business should not suffer with the deficiency of cash at the end of the year.

An effective cash management service is the one that deals with the proper management of expenditures of the organization and thereby manages the overall annual budget of the corporate. There are few methods if followed sincerely then, the cash flow of the organization can be improved:

* Before you start up with anything, you need to plan out the structure. It is required because with the proper framework one can achieve the originality. Therefore for the cash management services, you need to understand the cash flow planning, track the cash flows, and determine the money that you going to spend in future for some or the other purposes. All these will serve as the active initiative in order to manage the cash flow. Continue reading ‘Financial Cash Flow Management – Tips to Improve the Cash Flow of Organization’ »