It’s that trait that will make your lender want to take you home to meet Mom and Dad, and to open up those deep pockets to fund your business.
As one of the Five Cs of credit, Character is often buried underneath other terms like “Cash Flow,” “Capital,” “Collateral” and “Conditions.” But now Character might be the most important attribute of all.
Why Character Will Get You a Business Loan
What do banks and credit unions really want in return for giving someone a small business loan? In the end, there’s only one thing: repayment.
Collateral doesn’t repay loans, and good cash flow by itself has never payed back a single business loan. The only thing that will really repay a loan is the character of the borrower.
If a lender knows your character is the kind that will do whatever it takes to pay them back, you’ll likely get the capital you need.
In Bob Coleman’s book, “Money Money Everywhere But Not a Drop for Main Street,” Bob talks about how a large number of lenders give a disproportionate share of their hotel loans to the Asian-American community.
The reason is not about race. It’s cultural.
From years of experience, lenders have found that members of this community will work insane hours to make the business successful. And it’s not just the owners of the motels, either. It’s a family affair that includes uncles, aunts, grandparents, sons, daughters, nieces, nephews, cousins, and even the dog. If there’s a problem, lenders know their extended network will all chip in to help it become successful. And the numbers prove it. Coleman said loss rates among this group of people are infinitesimal.
Lenders know the Asian-American community will not give up. It’s that character trait the helps them get the capital they need.
“The number one character test bankers want to know is that you won’t give up,” Coleman said.
5 Ways to Show Lenders You Have Character
The evaluation of character starts the moment the borrower opens the door, and continues through an interview process. The banker might start with, “Tell me about your business and about what you do.”
The answers to this question should go beyond the details of your product. This is where you can sell your character, your commitment, expertise, honesty, passion and determination. The lender wants to know how your run your business and your life. They want to know if your character is one they can trust with their money.
When you go into this meeting, have all the up-to-date numbers, figures, last month’s sales, and other facts needed. Bankers love minutia — especially if it’s current. If you know your industry and have the right projections for your business, that will show you have the passion and knowledge to make your business work.
At the same time, don’t exaggerate things. Lenders are like bloodhounds that sniff out businesses that will burn them. If you’re not realistic on your numbers or are bragging more than you should about your business, that’s a red flag.
2. Good Credit
Lenders judge character by a couple different things inherently. A person’s FICO credit score is one critical piece of this puzzle. If you have bad credit, lenders will automatically assume you may not have the character to pay back the loan. Remember, you’ll also be aligned with the character and credit profile of your spouse.
Sometimes, the only thing you can do with this situation is to improve your credit before gaining a lender’s trust.
3. Online Reputation
What do other people say about you? About your business? What’s your reputation online? What are you saying on Facebook? What will a lender see when they type your name, or your business name, into Google?
Yes, all these things matter. A lot.
Lenders are searching you online to see if they can trust you. Banks are starting to nose around on Facebook and Twitter to determine credit, even.
If you want to get a business loan, make sure your online reputation is solid.
4. Business Loan Applications
In the SBA loan application, you will be asked a few questions about being on parole, under indictment, probation, if you’ve been arrested, and other criminal offenses. If you or your spouse should answers “yes” to any of these questions, make sure you come with the information you need and a resolution to those problems.
If you’re willing to answer these questions openly, and address them, that will show a sign of good character. You want to avoid giving the lender any excuse to raise red flags in your application.
5. Rise Above Competition
There is real competition to get a business loan. As soon as you walk in, the lender is comparing you with every other business owner they’ve seen that day — some perhaps even in your same industry. To stand out from the others, you need to show your character.
You have to convince the bankers that you are smarter than your competition. Prepare a business plan and an outline of talking points that convince your lender why your character is strong, and why you are in the top 10 percent of all those that have walked through their door.
It’s hard to pinpoint what character really is. Unfortunately, it’s a bit of a subjective thing, even for bankers that are obsessed with minutia. In many cases, as Bob Coleman said, “you know it when you see it.”
How else can you convince your lender that you have strong character?