In approving a loan, BiG adheres to four general principles:
- Determine the customer’s needs, not the customer’s desires;
- Ask for collateral appropriate for the loan product;
- Match loan terms with long- and short-term needs
- Match repayment with cash flow
Specifically, we first evaluate four areas: cash flow, credit, collateral, and character. If after looking at these four we are undecided, then there are a several additional factors that can push the application to acceptance, including: woman or minority ownership; low-income job creation; location in a low/moderate income census track; collateral valued at over 50% of loan amount; and, having 100% matching equity.
“Cash flow” refers to the balance of income and expenses over time. If your income less expenses is positive, then you are said to have a positivecash flow for the time period. Successful loan applicants are expected to demonstrate positive cash flow sufficient to repay the loan. Both personal and business cash flow is carefully considered.
No magic number automatically results in an approval or turn down of loan application. We do not like to see past dues, large numbers of current derogatories, or open bankruptcies-generally, we are more concerned with bad debt than the amount of debt. When we do see issues of concern, we will give you an opportunity to explain extenuating circumstances and to reach work out agreements with your creditors. Bankruptcies are required to be dismissed for at least two years (preferably more), during which time we expect to see that you have worked to rebuild your credit.
BiGAUSTIN does not always require 100% matching collateral for its loans. If potential collateral is available to fully secure a loan, we will require the pledging of these available assets. Naturally, a fully collateralized loan will be easier for us to approve-but we only require 75%. Collateral includes all business assets and personal vehicles that you own outright. We do not take any other personal assets as collateral. We will file a lien on the vehicles and on all business assets, which we will accordingly release once the loan is paid back in full. BiG will also consider real estate, receivables, inventory, equipment, CDs or publicly traded stocks as security. Following Texas law, we cannot use a homestead as collateral.
All loan recipients must carry –
- Life insurance with BiG listed as an assignee (not beneficiary); and
- Business insurance with BiG listed as a lost payee.
throughout the term of the loan.
Character, as a subjective measure, is extremely difficult to assess consistently. We do so by looking for positive business and/or landlord references, a clean work place, and experience in the business. False or unrealistic statements on the pre-qualification application or business loan application, public records and outstanding legal issues will count against an applicant’s character.
A Note On Startups
Startup businesses are our greatest risk, as there is little historical cash flow information for us to base our decision on. For this reason, we require that startup entrepreneurs have some source of income other than the business-from a second job, a spouse, retirement, savings, etc.
While we prefer to work with businesses having at least 3 months of sales. Lack of historical financial statements requires us to rely on other criteria. If the business does not have 3 months of sales, we will require contracts or executed letters of intent documenting the majority of projected sales. This means that both credit and collateral must be excellent, including the use of a vehicle or cash security for collateral.