Being “Screened Out” during a business loan refinance is harmful to any borrower. Being “screened out” means that for whatever reason, a borrower does not meet the qualifying guidelines set by a lender. For a borrower seeking to refinance a business loan, this can be devastating.
As some lending scenarios are time-sensitive, a screen-out can add additional costs of both time and money. More importantly, borrowers are so concerned about the fact that they are being screened out that they never stop to consider why. Needless to say, borrowers looking to refinance must be aware of what is in their credit history in order to avoid such an occurrence.
SECURING YOUR LOAN
Your company needs financing, but research and due diligence puts your personal information at risk. The more options you consider, the more vulnerable you become. All lenders want to run your credit and access your personal information. Do not let them. Let Mayava find you the best rate available, safely and quickly without putting you and your company at risk.
So to avoid a “screen-out” when refinancing, follow these important tips:
Know Your Credit History and How Much Outstanding Debt You Have
Many times, a borrower will be disqualified from the screening process due to excessive levels of debt. However, there are times that a borrower will be disqualified because they are not aware of the debt they carry. There are even times where borrowers are not even aware of debt that was on their records.
This is why before pursuing any refinancing, businesses must know their credit history and also about any outstanding debt. This will give an idea of what debt is outstanding, how much is owed and how much interest is being incurred. It will also give a lender a better idea of a borrower’s financial situation to see if a refinancing makes sense, or if a different course of action is necessary.
Checking old statements contacting lenders on past and existing credit lines will also help clear up any confusion over outstanding debt.
Also, free credit report screening sites will also record any existing business debt so that lenders have a more accurate screenshot of past and existing debt.
The moral of the story for this consideration is “Know before you go.”
Get a Summary of Your Lender’s Underwriting Standards
Much like any other relationship, communication matters between borrower and lender. It is not enough to know a borrower’s financial situation; a borrower must know the underwriting standards of their lender. This helps a borrower not only undertake the necessary preparations before refinancing but also if the lender will even work with them, one of the hallmarks of responsible lending.
Therefore, borrowers should ask for a summary of the underwriting standards utilized by their lenders. Many lenders will provide information about their lending criteria and tombstones from past deals. This helps give borrowers an idea of a lender’s capabilities and even the type of deals they like to work on. Borrowers can also segment portions of their debt and refinance amongst different lenders if need be, especially if there are different kinds of debt.
Understanding what kind of deals a lender works on will help a borrower have a much more efficient refinancing experience and will reduce the debt burden and monthly payments associated with them.
Update Your Business Records
Many times, businesses have not updated their records and filings. Besides the usual required financial disclosures, businesses do not update their records and filings. Sometimes, a company operating as a limited partnership will actually be run as a sole proprietorship on paper. For whatever reason, the owner of the company has not updated its records.
When refinancing, this can affect the company in several ways. Besides the potential tax consequences, any refinancing effort will be rendered moot if the company does not have the proper paperwork and filing documents. Lenders will not have confidence in a company that is not properly organized and borrowers will have additional work to do that costs more in time and money.
So before refinancing, make sure that all business records are current and up to date.
Also make sure that the company is properly organized and all records are available. A lender will be more willing to work with a company that can readily furnish the proper records and will be able to refinance a company’s debt more effectively.
Know Which Type of Business Debt You Have
Before refinancing, a company should be aware of what kind of debt they have incurred. Refinancing debt will become a much easier process if the type of debt has been identified. There are different types of business debt and correspondingly different types of addressing them.
The considerations for merchant cash advance debt, for example, differ greatly compared to hard money loans. Since underwriting and valuation on these loans are different, the way that this debt is assessed will be too. A company may find itself underwater on its debt and might not be able to refinance so easily. Sometimes, a lender might not be able to effectively refinance certain kinds of business debt.
So to avoid being “screened out” when refinancing, make sure that these steps are among some of the first steps that are taken. The refinancing experience will be a much easier and more efficient process.