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Writing a business plan is one of the least favorite activities of the majority of small business owners. The traditional rule of credit is if you want to grow and operate your business you will need a business plan to find capital. This is quickly changing as more and more business owners learn about business plan-free financing.
Change has swept through industries, society and careers. Over the last few years, change and its companion, information technology, is altering the face of small business lending.
The relationship-based banking in the small loans and credit market is becoming irrelevant. The decision of loan approval is determined by a computerized credit scoring program unless a business requires a loan or credit product over $100,000.
Automated Credit Scoring Benefits
No Business Plan. Credit scoring removes the need for a business plan and only financials are required.
No business plan means a large saving of time or money as opposed to hiring a business plan consultant or doing it yourself.
Quick Money. Opportunities are limited. The faster access to capital allows a business owner to capture a window of opportunity before it closes. Much more common in our fast-paced society.
Reduced Subjectivity. Automated credit scoring reduces the subjectivity of the loan process. For instance, a commercial banker with many failed restaurants in his credit portfolio will be more inclined to decline your loan for your restaurant. The credit scoring system would remove any bias present in the decision-making process.
The downfall of these lending approaches for small business is that your relationship with your banker may still be beneficial but less on the credit approval side. Also, the lack of planning can place more risk on your business decision process.
In light of the "new rules" governing the credit process for small business at many banks, the business owner can adopt these strategies:
Business Plan Free Lending Tips
1. Determine your needs. Assess your credit needs and if the amount needed is closer to $100,000, apply for $110,000 or more. Usually, if the bank wants a business plan, it may not be using a credit scoring model.
2. Assess your history. Before making a loan or credit application, obtain your credit report and check for errors and omissions.
3. Ensure data integrity. If you are applying for less than $100,000 and the bank is using credit scoring automation go over all questions for the loan or credit application. Ensure the data you provide is accurate and ask questions to understand the information in the application.
4. Review your industry codes. Make sure you provide an accurate description of your business. The bank may code your company by SIC codes, an inaccurate coding can alter the outcome of the approval.
5. Go big. Consider the type of bank you select when applying for the loan. A larger bank or institution will use the automated credit scoring system more than smaller institutions.
The new changes to the small business lending market represent an intensifying competitive industry. Many non-bank players (eg.Intuit, State Farm, GE Capital Corp.) are forcing banks to adapt to the market or lose market share. For the small business owner, this means a greater choice and service as all companies wake-up to the size and power of small business.
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