When you apply for a loan, the lender will review your existing financial statements and your application to determine if you are eligible for the loan. By reviewing your sales, projections, and research, the lender decides if you will be able to pay back the loan within the loan term.
Capacity to Repay
Cash flow is the term that summarizes all of the cash that goes in and out of your business. Any lender will want to know what your cash flow is in order to determine your eligibility for a loan, or your capacity to repay.
Any loan for which funds have been disbursed, and all required documentation has been executed, received and reviewed. For statistical purposes, first or total disbursement is counted as a closed loan.
CLP - Certified Lender Program (SBA)
The most active and expert lenders qualify for the SBA's streamlined lending programs. Under these programs, lenders are delegated partial or full authority to approve loans, which results in faster service from SBA. Certified lenders are those who have been heavily involved in regular SBA loan-guaranty processing and have met certain other criteria. They receive a partial delegation of authority and are given a three-day turnaround by the SBA on their applications (they may also use regular SBA loan processing). Certified lenders account for nearly a third of all SBA business loan guaranties. Learn more about the SBA and SBA loans.
COC - Certificate of Competency (SBA)
The Certificate of Competency (COC) program allows a small business to appeal a contracting officer's determination that it is unable to fulfill the requirements of a specific government contract on which it is the apparent low bidder. When the small business applies for a COC, SBA industrial and financial specialists conduct a detailed review of the firm's capabilities to perform on the contract. If the business demonstrates the ability to perform, the SBA issues a COC to the contracting officer requiring the award of that specific contract to the small business. Learn more about the SBA and SBA loans.
A loan covenant includes repayment terms and other stipulations needed to remain in good standing with your lender. There are usually three types of loan covenants: affirmative, negative, and financial. Affirmative covenants require you to complete certain activities, like purchasing a specific insurance or provide financial statements regularly. Negative covenants prevent you from doing things, like taking on additional debt without your lender's knowledge and approval. Financial covenants outline what your business needs to produce financially to keep your loan, like a certain minimum level of pre-tax profits. If you violate a loan covenant, your lender has the right to retract the loan, stop any additional lending, sieze your collateral or start a legal action against your business.
Credit Score (Personal and Business)
Your personal credit score is a number that helps lenders calculate the risk associated with lending to you or your business. The credit score is determined by your debt and payment history on things like credit cards, mortgages, or other bills. Also known as a FICO score, credit scores can range from 300 (worst) to 850 (best). Things that can impact your credit score include bad personal payment history, little to no credit history, and high credit utilization (meaning you are using a high proportion of your available credit). Some lenders use a business credit score, or FICO Small Business Scoring Service (FICO SBSS), to make accurate lending decisions. The US Small Business Association now uses the FICO SBSS to pre-screen for its popular 7(a) loan. The score is calculated by looking at personal and business credit history, as well as other business financial information like age of the business, number of employees, and financial data. Learn more about credit scores in the Venturize Credit Score IQ section.