Top Four Mistakes Buyers Make When Applying for Financing 

In today’s market, financing a childcare is oftentimes the most difficult hurdle to clear whether you’re acquiring more childcare centers and schools or just refinancing your current debt.  Hence, it is very important to avoid any pitfalls that can make your borrowing process more difficult.  Here are four of the most common mistakes made when applying for a loan.

1.  Applying to only one lender.  Although there are many lenders who want to make good loans, people still tend to go to their local bank first without shopping around.  While lenders are important, they are still vendors who can compete for your business.  As the cost of financing is a material cost, one should always make sure of receiving the best terms to fit the project.  Between banks and the SBA (Small Business Administration), there are many options that can help borrowers be more successful in their endeavors.  It’s always better to at least know which options are available to you.

2.  Not knowing if you demonstrate the ability to repay the loan.  It is very normal to apply for a loan and not know if the bank (or other lender) will approve the loan.  That’s why we go through the lending process.  However and before you apply for a loan, it is a good idea to review your own cash flow internally so you know whether or not you feel you can repay the loan.  Lenders will talk in terms of Debt Coverage Ratio or Debt Service Coverage.  In English, they are simply checking to see if you have enough “cushion” to ensure that they get their money back when they lend it to you.  Before you shop for financing, make sure you can report your income, expenses and profits (or losses) clearly.  Be direct and honest with your lender.  The faster a lender knows your correct numbers, the more quickly he or she can decide whether they can make the loan under terms that are acceptable to all parties.

3.  Not knowing your credit rating.Every lender is going need to know your credit score before they can do anything.  Before you apply for a loan, you need to know your credit scores.  If you are unsure of your credit score or think you might have blemishes on your credit report(s), it’s best to get copies of the reports from the major credit reporting agencies.  Having the reports in hand allows you or you and your lender to address any potential problems up front.  You can contact the major credit reporting agencies via the Resources Page at www.bfsinc.net/resources/.  (For clarity, BFS® receives no compensation for providing this access.)

4.  Not having your finances up-to-date.  Whether you are seeking a personal loan or abusiness loan, you will need to have your financial information in order for typically the last two to three complete years and the current year-to-date.  Having this information organized will help to expedite the borrowing process.  Lenders want to make good loans.  The fewer questions they have to ask, the better the experience will be for you and your lender.

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