Seven Tips For Credit-Enhancing Your Business Loan -

Home
>
Loan
>
Seven Tips For Credit-Enhancing Your Business Loan

Seven Tips For Credit-Enhancing Your Business Loan

What are the avenues available to businesses with weak credit profiles or to companies pursuing credit transactions that are perceived as too risky by credit providers? Many companies apply for credit at banks, finance companies or equipment leasing firms and are routinely rejected due to the high degree of perceived credit risks. When approaching a credit provider, it is helpful to understand what can be done to reduce the risk of a credit transaction in the eyes of the provider. Never accept a credit rejection without considering credit enhancements. Here are a few tips on credit enhancement to help guide you in approaching the credit process:

1. Credit enhancements are modifications to credit transactions that improve the risk-reward relationship for credit providers. Enhancements can be real or merely perceived by the receiving party. Also, they can be tangible things like real estate and equipment or they can be intangibles like future rights or options.

2. Use credit enhancements to strengthen credit transactions and to improve pricing or terms. They may be used to entice credit providers to approve credit transactions that would otherwise be unacceptable because of the perceived risks. They can also encourage credit providers to make transaction approvals faster.

3. Credit enhancements usually fall within one of these general categories: improvement in credit terms favoring the credit provider; additional collateral; guarantees, insurance or third party assurances; increased pricing, compensation or upside gain potential; or granting of specific rights or options.

4. Some specific enhancements include: granting a security interest in additional equipment, real estate, inventory, accounts receivable, intellectual property rights or other company assets; pledging cash; pledging securities; third party guarantees; surety bonds; letters of credit; pledging cash value of insurance; increase in transaction rate; additional fees or other transaction compensation; shortening the term of certain transactions; granting first refusal rights on future transactions; permitting call options; obtaining re-marketing guarantees or agreements.

5. When considering using credit enhancements to improve your transactions, use these guidelines: try to get a fair and objective assessment of your credit profile and the inherent transaction risks from a knowledgeable credit person; take inventory of the possible credit enhancements your firm can provide; evaluate the cost of possible enhancements to decide whether using them will be worthwhile; if there is time and opportunity for a second chance to present your transaction to the credit provider, present it first without the credit enhancement or with the minimum enhancement you think acceptable; of the credit enhancements available to your firm, decide which ones will be effective and the degree of enhancement necessary to achieve your objectives.

6. It helps to develop a credit enhancement strategy in the planning stage of your transaction. Start by understanding the transaction's credit strengths and weaknesses. Decide which enhancements available to your firm will help strengthen the risk profile of the transaction. Try to assess the credit provider's sensitivity to various types and degrees of credit enhancement. Later, if the credit provider turns down your transaction or proposes unacceptable terms, ask the provider to suggest enhancements that will make a difference in the decision. You may be able to negotiate further, once you have this information.

7. All credit enhancements have a cost. In many instances the cost is the opportunity cost of not having the credit enhancement available for future use. Before offering or providing a credit enhancement, do a thorough cost-benefit analysis to make sure the potential benefit is worth the cost to your firm.

Though it is not always possible to enhance a credit to the satisfaction of credit providers, you should understand the value of credit enhancements and know when they may be useful. By carefully considering potential credit enhancements, you can often improve the pricing and terms of your firm's credit transactions. If your firm has a weak credit profile, use of a credit enhancement might make the difference between obtaining financing or being rejected.

George Parker is a Director and Executive Vice President of Leasing Technologies International, Inc. ("LTI"), responsible for LTI's marketing and financing efforts. A co-founder of LTI, Mr. Parker has been involved in secured lending and equipment financing for over twenty years. Mr. Parker is an industry leader, frequent panelist and author of several articles pertaining to equipment financing.

Headquartered in Wilton, CT, LTI is a leasing firm specializing nationally in direct equipment financing and vendor leasing programs for emerging growth and later-stage, venture capital backed companies. More information about LTI is available at: http://www.ltileasing.com.

In The News:

table border=0 width= valign=top cellpadding=2 cellspacing=7trtd width=80 align=center valign=topfont style=font-size:85%;font-family:arial,sans-serifa href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://www.cbsnews.com/stories/2008/10/07/business/main4505574.shtmlcid=1256444755ei=vGfxSOj9Hpf-6gOvsJm8Bwusg=AFQjCNF4JXMcMSe2_5cla_u3BjLpsoYiiwimg src=http://news.google.com/news?imgefp=YEgZEAZJ__YJimgurl=wwwimage.cbsnews.com/images/2008/10/07/image4505580g.jpg width=80 height=60 alt= border=1brfont size=-2CBS News/font/a/font/tdtd valign=top class=jfont style=font-size:85%;font-family:arial,sans-serifbrdiv style=padding-top:0.8em;img alt= height=1 width=1/divdiv class=lha href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://www.nytimes.com/2008/10/11/business/yourmoney/11money.html%3Femcid=1256444755ei=vGfxSOj9Hpf-6gOvsJm8Bwusg=AFQjCNF1gClJcdEvPTJKy4_DSIvlUTj07AYour Money One Thing You Can Control: Your Credit Score/abrfont size=-1font color=#6f6f6fNew York Times,nbsp;United Statesnbsp;-/font nobr15 hours ago/nobr/fontbrfont size=-1Lurking beyond the devastation in the markets are other problems, like the fact that consumers are having an increasingly hard time getting bloans/b. b.../b/fontbrfont size=-1a href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://ap.google.com/article/ALeqM5jC0Js_XMSCt-GDAijc3qIbjuVZIAD93LLN5G0cid=1256444755ei=vGfxSOj9Hpf-6gOvsJm8Bwusg=AFQjCNEb3ffAPg9ib19qGJfK3Jx3EhIXhAFed lays out details for bank bloans/b/a font size=-1 color=#6f6f6fnobrThe Associated Press/nobr/font/fontbrfont size=-1a href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://www.iht.com/articles/ap/2008/10/10/news/Meltdown-Glossary.phpcid=1256444755ei=vGfxSOj9Hpf-6gOvsJm8Bwusg=AFQjCNEYHMYtzGIZFC2UhlwV_PRlIIc70QGlossary: Translating the financial crisis/a font size=-1 color=#6f6f6fnobrInternational Herald Tribune/nobr/font/fontbrfont size=-1a href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://news.mywebpal.com/news_tool_v2.cfm%3Fshow%3Dlocalnews%26pnpID%3D680%26NewsID%3D929859%26CategoryID%3D18764%26on%3D1cid=1256444755ei=vGfxSOj9Hpf-6gOvsJm8Bwusg=AFQjCNGsTpLcbNHh5tngTd7BdDVCrXhaLQRegional financial experts focus on lending; say credit crunch is b.../b/a font size=-1 color=#6f6f6fnobrRome News-Tribune/nobr/font/fontbrfont size=-1 class=pa href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://marketoracle.co.uk/Article6745.htmlcid=1256444755ei=vGfxSOj9Hpf-6gOvsJm8Bwusg=AFQjCNG5RaeMWqQZPM2ZC2h2mWoCVSOb1AnobrThe Market Oracle/nobr/anbsp;- a href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://ap.google.com/article/ALeqM5jC0Js_XMSCt-GDAijc3qIbjuVZIAD93LEPVO0cid=1256444755ei=vGfxSOj9Hpf-6gOvsJm8Bwusg=AFQjCNGM3bUDNZ6oid8xPzV4bc6ZMZiiVQnobrThe Associated Press/nobr/a/fontbr/font class=p size=-1a class=p href=http://news.google.com/news?sourceid=navclientie=ISO-8859-1rls=GGLG,GGLG:2005-22,GGLG:enncl=1256444755hl=ennobrall 1,685 news articles/nobr/a/font/div/font/td/tr/table

table border=0 width= valign=top cellpadding=2 cellspacing=7trtd width=80 align=center valign=topfont style=font-size:85%;font-family:arial,sans-serifa href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://www.familysecuritymatters.org/publications/id.1428/pub_detail.aspcid=1255326638ei=vGfxSOj9Hpf-6gOvsJm8Bwusg=AFQjCNEVbUEOkng_AusuaNGncgSGXf4i-Qimg src=http://news.google.com/news?imgefp=evZLD1PF_DkJimgurl=www.familysecuritymatters.org/imgLib/20081010_obama_stunned_look.jpg width=80 height=54 alt= border=1brfont size=-2Family Security Matters/font/a/font/tdtd valign=top class=jfont style=font-size:85%;font-family:arial,sans-serifbrdiv style=padding-top:0.8em;img alt= height=1 width=1/divdiv class=lha href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://www.indystar.com/apps/pbcs.dll/article%3FAID%3D/20081011/OPINION01/810110392/1002/OPINIONcid=1255326638ei=vGfxSOj9Hpf-6gOvsJm8Bwusg=AFQjCNHUIo9FPsZCjMI77Oqe_JDDBE7dWAbLoans/b to low-income led to current crisis/abrfont size=-1font color=#6f6f6fIndianapolis Star,nbsp;United Statesnbsp;-/font nobr20 hours ago/nobr/fontbrfont size=-1In 1995, the Clinton administration implemented revisions to the CRA, which are credited with greatly increasing the number of home bloans/b to low-income b.../b/fontbrfont size=-1a href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://www.miamiherald.com/news/politics/AP/story/722379.htmlcid=1255326638ei=vGfxSOj9Hpf-6gOvsJm8Bwusg=AFQjCNEWHgBZ5nYaBh33GeNWP9ZltKTqrAData prove untrue charges that push for affordable housing caused b.../b/a font size=-1 color=#6f6f6fnobrThe Miami Herald/nobr/font/fontbrfont size=-1a href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://www.ajc.com/blogs/content/shared-blogs/ajc/bookman/entries/2008/10/11/update_on_polls_blame_for_the.htmlcid=1255326638ei=vGfxSOj9Hpf-6gOvsJm8Bwusg=AFQjCNGv-f8-WACVwovfl7SLg6TKKVD3iAUpdate on polls, blame for the subprime collapse/a font size=-1 color=#6f6f6fnobrAtlanta Journal Constitution/nobr/font/fontbrfont size=-1a href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://www.boston.com/bostonglobe/editorial_opinion/editorials/articles/2008/10/11/subprime_scapegoatscid=1255326638ei=vGfxSOj9Hpf-6gOvsJm8Bwusg=AFQjCNHEypTdBbtRYejBjGuXt2X5jjGw4ASubprime scapegoats/a font size=-1 color=#6f6f6fnobrBoston Globe/nobr/font/fontbrfont size=-1 class=pa href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://www.alternet.org/democracy/102555/memo_to_gop:_minority_homeowners_did_not_cause_wall_st._meltdown/cid=1255326638ei=vGfxSOj9Hpf-6gOvsJm8Bwusg=AFQjCNEcqaD2JPLje0ZM28WK1hky7Q49LAnobrAlterNet/nobr/anbsp;- a href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://www.washingtonpost.com/wp-dyn/content/article/2008/10/11/AR2008101100173.htmlcid=1255326638ei=vGfxSOj9Hpf-6gOvsJm8Bwusg=AFQjCNGP6JS22hc5T36t_UR1konddCTJbgnobrWashington Post/nobr/a/fontbr/font class=p size=-1a class=p href=http://news.google.com/news?sourceid=navclientie=ISO-8859-1rls=GGLG,GGLG:2005-22,GGLG:enncl=1255326638hl=ennobrall 68 news articles/nobr/a/font/div/font/td/tr/table

table border=0 width= valign=top cellpadding=2 cellspacing=7trtd width=80 align=center valign=topfont style=font-size:85%;font-family:arial,sans-serifa href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://www.boston.com/news/politics/2008/articles/2008/10/11/mccain_obama_offer_dueling_ideas_to_save_economycid=1256210871ei=vGfxSOj9Hpf-6gOvsJm8Bwusg=AFQjCNF_bZdh74WxamkeyOsdxxvgehCorgimg src=http://news.google.com/news?imgefp=XpSGOUS3o6sJimgurl=cache.boston.com/resize/bonzai-fba/AP_Photo/2008/10/11/1223698676_7686/539w.jpg width=80 height=54 alt= border=1brfont size=-2Boston Globe/font/a/font/tdtd valign=top class=jfont style=font-size:85%;font-family:arial,sans-serifbrdiv style=padding-top:0.8em;img alt= height=1 width=1/divdiv class=lha href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://www.boston.com/news/politics/2008/articles/2008/10/11/candidates_offer_new_proposals_to_aid_investors_merchantscid=1256210871ei=vGfxSOj9Hpf-6gOvsJm8Bwusg=AFQjCNGpF4M8pAMNMJRyyjlt3-odaA6OxQCandidates offer new proposals to aid investors/abrfont size=-1font color=#6f6f6fBoston Globe,nbsp;United Statesnbsp;-/font nobr19 hours ago/nobr/fontbrfont size=-1To help small businesses unable to get credit, Obama called for the government to provide affordable, fixed-rate bloans/b to small businesses, b.../b/fontbrfont size=-1a href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://online.wsj.com/article/SB122368108334524797.html%3Fmod%3Dgooglenews_wsjcid=1256210871ei=vGfxSOj9Hpf-6gOvsJm8Bwusg=AFQjCNHos6VzV1W0w5EvZF4Nz43Lg3S9RQObama, McCain Scramble to Address Voters#39; Fears/a font size=-1 color=#6f6f6fnobrWall Street Journal/nobr/font/fontbrfont size=-1a href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://www.nytimes.com/2008/10/11/us/politics/11retire.html%3Fref%3Duscid=1256210871ei=vGfxSOj9Hpf-6gOvsJm8Bwusg=AFQjCNEr0nbX9siEAHz_ajGWxaWKDrw7HQCandidates Present 401(k) and Small-Business Plans/a font size=-1 color=#6f6f6fnobrNew York Times/nobr/font/fontbrfont size=-1a href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://news.xinhuanet.com/english/2008-10/11/content_10177534.htmcid=1256210871ei=vGfxSOj9Hpf-6gOvsJm8Bwusg=AFQjCNFyO82TP36QCqVD5H6EhNB_5bR42AObama, McCain unveil new economic proposals/a font size=-1 color=#6f6f6fnobrXinhua/nobr/font/fontbrfont size=-1 class=pa href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://firstread.msnbc.msn.com/archive/2008/10/10/1528327.aspxcid=1256210871ei=vGfxSOj9Hpf-6gOvsJm8Bwusg=AFQjCNEmVBAVyQbs2BKeBVrPBR1v9MYJnQnobrMSNBC/nobr/anbsp;- a href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://blog.inc.com/the-entrepreneurial-agenda/2008/10/obama_unveils_small_business_r.htmlcid=1256210871ei=vGfxSOj9Hpf-6gOvsJm8Bwusg=AFQjCNHM9QWXM13-cJeaPIqcUUbJGquWtAnobrInc.com/nobr/a/fontbr/font class=p size=-1a class=p href=http://news.google.com/news?sourceid=navclientie=ISO-8859-1rls=GGLG,GGLG:2005-22,GGLG:enncl=1256210871hl=ennobrall 238 news articles/nobr/a/font/div/font/td/tr/table

table border=0 width= valign=top cellpadding=2 cellspacing=7trtd width=80 align=center valign=topfont style=font-size:85%;font-family:arial,sans-serifa href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://www.memphisdailynews.com/editorial/Article.aspx%3Fid%3D38937cid=1255977840ei=vGfxSOj9Hpf-6gOvsJm8Bwusg=AFQjCNEOPQjK6PAAiQ68np_XCqM-dWAEYwimg src=http://news.google.com/news?imgefp=btO3XwBQ5IkJimgurl=www.memphisdailynews.com/Editorial_Images/5687.jpg%3Fid%3D5687%26maxWidth%3D300 width=80 height=54 alt= border=1brfont size=-2Memphis Daily News/font/a/font/tdtd valign=top class=jfont style=font-size:85%;font-family:arial,sans-serifbrdiv style=padding-top:0.8em;img alt= height=1 width=1/divdiv class=lha href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://www.lakewalesnews.com/articles/2008/10/11/opinion/letters/loyd.txtcid=1255977840ei=vGfxSOj9Hpf-6gOvsJm8Bwusg=AFQjCNFSNxkJSpaxvAsK9EItVHsrmbg26wInside this section:/abrfont size=-1font color=#6f6f6fLake Wales News,nbsp;FLnbsp;-/font nobr10 hours ago/nobr/fontbrfont size=-1From the mortgages who never should have borrowed the money, to the lenders who mad the bloans/b, all the way up to the Clinton and Bush administrations for b.../b/fontbrfont size=-1a href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://www.azstarnet.com/allheadlines/261881cid=1255977840ei=vGfxSOj9Hpf-6gOvsJm8Bwusg=AFQjCNFKBYGX-s-j-El225lxV0w4EtpYkQWhen seeking meltdown villain, don#39;t overlook mortgage lenders/a font size=-1 color=#6f6f6fnobrArizona Daily Star/nobr/font/fontbrfont size=-1a href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://mediamatters.org/items/200810100022%3Ff%3Dh_latestcid=1255977840ei=vGfxSOj9Hpf-6gOvsJm8Bwusg=AFQjCNEREwtUwOJEOsfP3FC-rBw7mwEeLAMyths and falsehoods about the purported link between affordable b.../b/a font size=-1 color=#6f6f6fnobrMedia Matters for America/nobr/font/fontbrfont size=-1a href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://www.bloomberg.com/apps/news%3Fpid%3D20601087%26sid%3Da1.sWyxzwB6k%26refer%3Dhomecid=1255977840ei=vGfxSOj9Hpf-6gOvsJm8Bwusg=AFQjCNEv4Z2USO-GAB_BT-HwetPewxaD3AFannie, Freddie Mortgage-Bond Spreads Exceed Pre-Takeover Level/a font size=-1 color=#6f6f6fnobrBloomberg/nobr/font/fontbrfont size=-1 class=pa href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://www.investors.com/editorial/editorialcontent.asp%3Fsecid%3D1501%26status%3Darticle%26id%3D308530236252361cid=1255977840ei=vGfxSOj9Hpf-6gOvsJm8Bwusg=AFQjCNFPz0z1mmF-SdZT7wur--9wx5IiOQnobrInvestor's Business Daily (subscription)/nobr/anbsp;- a href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://flathatnews.com/blog/40/election-2008/69031/bailed-out-10-things-you-should-know-about-financial-crisiscid=1255977840ei=vGfxSOj9Hpf-6gOvsJm8Bwusg=AFQjCNGeDUNbx1xVXbFhTdgmy6W0AV4SoAnobrThe Flat Hat/nobr/a/fontbr/font class=p size=-1a class=p href=http://news.google.com/news?sourceid=navclientie=ISO-8859-1rls=GGLG,GGLG:2005-22,GGLG:enncl=1255977840hl=ennobrall 219 news articles/nobr/a/font/div/font/td/tr/table

table border=0 width= valign=top cellpadding=2 cellspacing=7trtd valign=top class=jfont style=font-size:85%;font-family:arial,sans-serifbrdiv style=padding-top:0.8em;img alt= height=1 width=1/divdiv class=lha href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://www.marketwatch.com/news/story/california-bank-commerce-announces-results/story.aspx%3Fguid%3D%257B10CB868D-8A7C-4215-87BC-C95AB1C37621%257D%26dist%3Dhpprcid=1255944991ei=vGfxSOj9Hpf-6gOvsJm8Bwusg=AFQjCNEyhFq-9BEU_tUNnaPj5uoQi_GXYwLAFAYETTE, CA, Oct 10, 2008 (MARKET WIRE via COMTEX) -- California b.../b/abrfont size=-1font color=#6f6f6fMarketWatchnbsp;-/font nobrOct 10, 2008/nobr/fontbrfont size=-1Total bLoans/b grew 45% and Total Deposits grew 19% over the same period. The Bank was negatively affected by the Government#39;s GSE takeovers. b.../b/fontbrfont size=-1a href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://www.bizjournals.com/tampabay/stories/2008/10/06/daily46.htmlcid=1255944991ei=vGfxSOj9Hpf-6gOvsJm8Bwusg=AFQjCNGXC8WsBnn1ow4itl1yYuZUgarS2AWeak real estate continues to draw down Bank of Florida earnings/a font size=-1 color=#6f6f6fnobrBizjournals.com/nobr/font/fontbrfont size=-1a href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://www.naplesnews.com/news/2008/oct/10/bank-florida-reports-34m-third-quarter-loss/cid=1255944991ei=vGfxSOj9Hpf-6gOvsJm8Bwusg=AFQjCNF3uAs9g4XgUrrqryR9Ffio6IAbnwBank of Florida reports $3.4M third quarter loss/a font size=-1 color=#6f6f6fnobrNaples Daily News/nobr/font/fontbrfont size=-1a href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://www.marketwatch.com/news/story/elmira-savings-bank-posts-earnings/story.aspx%3Fguid%3D%257BD8138545-EB4E-4675-830D-2E0EB1D34B53%257D%26dist%3Dhpprcid=1255944991ei=vGfxSOj9Hpf-6gOvsJm8Bwusg=AFQjCNFAYxcKkWctt-wwCE9fRfVSGF90HgElmira Savings Bank Posts Earnings/a font size=-1 color=#6f6f6fnobrMarketWatch/nobr/font/fontbrfont size=-1 class=pa href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://www.marketwatch.com/news/story/amidst-current-economic-turmoil-bank/story.aspx%3Fguid%3D%257B6C90BDF8-27DF-49BA-865C-108A234D382F%257D%26dist%3Dhpprcid=1255944991ei=vGfxSOj9Hpf-6gOvsJm8Bwusg=AFQjCNFYzjDDGl6i44uMV7fUjQ9B9avmPQnobrMarketWatch/nobr/anbsp;- a href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://www.marketwatch.com/news/story/pacific-alliance-bank-announces-third/story.aspx%3Fguid%3D%257B43E88D71-C980-497A-A644-A0C70DF3A3CA%257D%26dist%3Dhpprcid=1255944991ei=vGfxSOj9Hpf-6gOvsJm8Bwusg=AFQjCNGc9b1lw5IsvbFc6TOfHty8H1VzvwnobrMarketWatch/nobr/a/fontbr/font class=p size=-1a class=p href=http://news.google.com/news?sourceid=navclientie=ISO-8859-1rls=GGLG,GGLG:2005-22,GGLG:enncl=1255944991hl=ennobrall 61 news articles/nobr/a/font/div/font/td/tr/table

loans - Google News