Are You Bootstrapping Your Agency? Consider Applying For A Loan To Accelerate Growth
The era of subprime lending allowed people to buy a house with bad credit. This eventually caught up to us, and it brought about the 2007–2008 market crash, which taught us a harsh lesson: Banks have to be careful about how much they lend and to whom. When you ask for a loan, lenders aren’t just seeing you as a risk for their business: You’re a risk for the economy as a whole.
From my experience, I have seen a lot of agencies bootstrap their businesses – either in fear of accumulating debt or a misunderstanding of options. While bootstrapping is safe, it is not the only option. At Foxtail, we have taken out multiple business lines of credit in various stages that allowed us to expand into new business avenues and increase our revenues.
Lenders have a vested interest in screening potential loan recipients, and they have a detailed set of protocol that helps them identify individuals who might not be the best fit for a loan. That being said, agencies that have been around for more than a few years typically meet the criteria. With preparation, planning and a good accountant, getting financing for your agency can be a successful way to accelerate growth.
Below are just a few things lenders will look at when considering you for a loan.
Thin Credit Line
When starting out, building your credit or going through the credit repair process can seem like a contradictory task; to get approved for a loan, you need to have good standing with paying other loans. But how can you have good standing if you are just starting to build your credit and don’t have much of a history with loan payments? Since they have nothing to go off of in terms of your ability to faithfully make payments, many lenders will deny individuals with a thin credit line.
Credit cards are a great way to start building or rebuilding your credit in hopes that you might one day be approved for a loan. There are two types of credit cards: unsecured and secured. Unsecured credit cards are almost like a loan themselves — you get approved by your bank or other organization for a certain limit of how much you can spend on the card, and you pay off whatever you spend every month. Secured credit cards are more suited for people in need of a credit repair service or no credit and require that you pay a deposit up front in order to be approved.
Employment And Debt-To-Income Ratio
Obviously, you need a source of income in order to make your payments on a loan. A lender will also assess how much debt you currently have against your income. This is guaranteed to come up in any loan application that you fill out, so it is in your best interests to make sure that you have all of the necessary pieces that will appease the lender.
For most lenders, it’s not enough to state your income and where you have been employed. They will want proof. That can mean pay stubs, bank statements or tax forms. They will also consider your debt-to-income ratio or payment-to-income ratio. If this is too high, it’s more likely that you will not have the money required to faithfully make your payments each month.
Finally, lenders will likely look to your employment history and gaps in employment to see how reliable and stable you are. As a new business or agency, lending is typically harder to attain but it is not impossible. If you are a newer agency, get in contact with the Small Business Administration to see what options are available in your area.
Nearly everything we do these days has a digital trail. You may think that the things you share on social media are only seen by those that follow you but the rise of big data and data mining has given birth to a whole industry of companies that sell data to vested parties.
This means that when you go and apply for a loan, there is a chance that the potential lender has paid for your data or even just checked out your online profiles on their own. They will do this to find any hint they can about your personality and your ability to handle situations like making payments on time. Different lenders have different criteria for approval -- but to ensure success, make sure your business looks professional on all social media channels. At Foxtail, when we were looking for loans I noticed multiple checks to LinkedIn and Facebook, specifically via lenders. While I was never directly asked to link to these profiles, from my experience, they can be checked.
It’s important to know what your lender will be looking for when you go in to apply for a loan. Equip yourself with responsible habits with your employment, make payments on time, and leave a clean digital trail if you ever hope to get approved for your next loan.
Applying for loans can be nerve-wracking. Each time I have taken out a loan at Foxtail, I ultimately ended up with a lump in my throat of anxiety. But these loans have allowed us to expand services, hire new employees, and purchase tools that increase communication and productivity. If you are looking for a loan to accelerate your growth, don't let fear hold you back. If you have a plan to accelerate your growth and you need funding, loans don't need to deter you! Without funding at our agency, we would have had to halt our growth and we wouldn't be as successful as we are today. As agency owners, there is no need to be afraid of financing if you're well prepared.