TERM LOAN WITH LOSSES
‘Can my Business qualify for a term loan even though we show losses?’
The answer to this question is YES in many instances, depending on business/personal credit of the guarantors, shareholders compensation, interest and depreciation.
If the Business has taken short term amortization debt (Merchant Cash Advances) and is replacing that debt with a longer-term loan, banks ‘add back’ that interest and realize the new debt structure would be far more favorable to the Business. Additionally, many businesses that have collateral (machinery and equipment, Real Estate etc.) accelerate depreciation on those assets in order to mitigate their tax liability. Banks recognize this and allow depreciation to be an ‘add back’ to the amount of debt a business can place on their balance sheet.
Also, shareholders compensation is considered profit- if their compensation is high enough for the guarantors to pay their personal expenses. If it is obvious that the Business owner is being too aggressive with their ‘deductions’ to diminish tax liability, their credibility is diminished in the eyes of the Lender.
Lastly, speaking of credibility: guarantors personal credit score tells the lender who they are aligning themselves with- ESPECIALLY if there isn’t collateral involved in the loan. So, while clients say, ‘this is a Business loan, not a personal loan,’ personal credit IS a large part of the equation.
At BCCUSA we understand how hard it is to run a small to mid-size Business. Let us assist you in finding the right capital to run and expand your Business.
BCCUSA HELPING YOU KNOW BEFORE YOU BORROW