As the coronavirus ravages businesses, small business lenders are re-evaluating their underwriting policies, along with reviewing their risk tolerances for those industries that look like they may be hit hardest by the disruption.
We’ve been talking with our lending partners all week on their changing underwriting policies and updating our proprietary eligibility algorithm to make sure we’re giving Nav customers the best financing matches based on the real changes lenders are making right now.
Here’s what every business owner needs to know right now — even if your business hasn’t felt the pain of COVID-19 yet. (In fact, those businesses should read even more closely.)
What Are Lenders Looking at Differently Today Than They Did Last Week?
Not all lenders will apply the same formulae to how they evaluate business credit, but you can expect they will want to confirm the following. We’re seeing four major areas where underwriting criteria are changing rapidly.
Your Time in Business
Many lenders want to see a longer track record than they previously required. This could mean different things to different lenders. A lender that previously may have required a year in business last week, may want to see 18 months or two years now. You need to know what those requirements are before you apply, so you can focus your efforts on where you’ll have a better chance for success. (Nav lists minimum time in business requirements in our marketplace.)
Businesses that may previously have been considered good borrowers may now find themselves on a lender’s restricted list. In other words, they won’t lend to them. Some of those industries we have seen become restricted recently include:
- Gas Stations
- Gyms and Sports Clubs
- Entertainment Businesses—anything that draws a crowd
- Bricks and Mortar Retail
- Night Clubs and Bars
- Wireless Stores
Some on the list might make more sense than others, which can seem maddening. Now more than ever, knowing where to apply and where not to apply is critically important in this ever evolving business lending environment when you don’t have time to waste applying for financing where the odds are long. If you apply for loans you have no chance of getting, you could risk hard inquiries on your personal credit, which can lower your credit scores and decrease your chances of qualifying for other offers that are a better fit.
Your Cash Flow
With cash flow taking a major hit in many small businesses, demonstrating sufficient cash flow to successfully service debt is more important than ever. Lenders who may have accepted photocopies of bank statements in the past may require real-time access to your bank records now to confirm your business’ ability to make timely periodic payments.
We’re seeing lenders across the board require more than just past months’ statements, but month-to-date bank statements so they can get a real-time picture of how COVID is impacting your business.
Your Personal and Business Credit History
As mentioned before, previously acceptable credit profiles may be unacceptable now, meaning it’s more important than ever to know what the credit bureaus are reporting on your personal and business credit history. It’s human nature to impact the things you pay the most attention to. If you don’t know what your personal credit score is today and how the business credit bureaus describe your credit practices, that’s the first place to start—and you should start digging into that information today. A free Nav account is the only place you can see your personal and business credit history side by side, with business credit data from Experian, Dun & Bradstreet & Equifax and personal credit scores from Experian.
How We Can Help
There is no question that MainStreet is the backbone of our economy. If nothing else, the challenges we face today have made it clearer than ever how important businesses like bricks and mortar merchants, restaurants, grocery stores, and others are to our communities. That’s why we got into this business.
We take our obligation to share relevant, candid, and actionable information and advice seriously and promise the information we share will meet those standards.
We won’t pull any punches. In other words, we may have to tell you not to apply for an offer that you want, but you can trust that our advice is coming from our commitment to being a sage partner to you in these times of uncertainty.
The smarts and tenacity of business owners who make difficult and savvy business decisions every day is more apparent than ever to us as we field your questions. Since we opened our doors in 2012, we have made the most accurate credit information available to over a million business owners across the country. That commitment doesn’t stop now.
Our tools and experts can seamlessly connect you to loan applications for business credit cards, small business loans, business lines of credit, and other financial services. Our Credit & Lending team is just a phone call away if you want to speak with one of our experts.
We appreciate your trust in us and hope you feel our confidence in your business.
Please keep in mind this information is changing rapidly and is based on our current understanding of the programs. It can and likely will change. Although we will be monitoring and updating this as new information becomes available, please do not rely solely on this for your financial decisions. We encourage you to consult with your lawyers, CPAs and Financial Advisors. To review your real-time funding options with one of Nav’s lending experts, please contact us.
This article was originally written on March 19, 2020 and updated on October 3, 2023.