The Leasing GroupThe Leasing Group

by Bob Callander

What to Know Before Your Manufacturing Company Applies for Credit

As a manufacturing or processing company, you must constantly stay current with technological improvements in advanced machine tools, computerized conveyors, material handling equipment, storage facilities, etc.  This equipment does not come cheaply.  While lease and loan financing are available, applying for credit can be tedious, time-consuming, and frustrating, even for those companies with extensive and positive credit history. Fortunately, there are ways to make this process less painful, while also enhancing the probability of credit approval.  Wouldn’t it be nice to hear, “Yes, your credit is approved,” more often?

It all starts by understanding credit from a financial institution’s point of view.  Credit professionals typically cope with two opposing forces…wanting to extend credit as often as possible and wanting to keep their institutional money safe. Here are a few ways you can help:

  1. Ask for a reasonable amount of credit in relationship to your company’s capacity to pay it back. Cash flow is the key. You must show how and where your company will get the money to make repayment.  Will the loan be used to lower your costs, produce greater revenue, or both?  Be specific and detailed.  This is exactly what your financial institution is looking for.
  1. Tell your company’s story in a way that makes sense and helps your financial institution understand your complete history. When and how did you start your business?  How much did you personally invest?  Where did other money come from?  What are key elements of your success?  How will adding new equipment now help you expand?  Will the cost of expansion pay for itself?
  1. Prepare and provide historical financial statements that answer the questions your financial institution will ask. The numbers must support your request.  Confusing and inconsistent financial statements always throw up a red flag, thus slowing the process and lowering the probability of credit approval.
  1. Don’t try to hide the bad news. Every business goes through difficulties.  Your financial statements will show this.  Talk about these problems as openly and willingly as you would your successes.  If you make your financial institution dig for the explanations you will slow the process.  They always discover the whole truth eventually, so why not just save everyone a lot of time.  Besides, your honesty will build trust and credibility.

Prepare and provide financial projections to help your creditor see into your future the way you do.  They don’t know your business or share your vision.  If your projections are both realistic and positive, they’ll hop on board and want to help you succeed.  That’s when you will hear them say … “Yes, your request is approved.”

Bob
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What to Know Before Your Manufacturing Company Applies for Credit