What Factors Impact The Interest Rates And Loan Terms Offered By Lenders?
The compelling Loan Request Proposal that Childcare Brokers prepares to give to lenders addresses all the factors to secure low interest rates and good loan terms. If your childcare center has been turned down by other banks, we may be able to get lenders to say “Yes”.
Any factor that affects the predictability of a childcare center’s adjusted profits affects whether the loan is approved, and its loan interest rates and terms. A lower Loan To Value Ratio (the ratio of amount of the loan to the collateral amount) can also lower the interest rate.
Internal Factors increase the lender’s confidence in a childcare center’s numbers, operations, and competitive position. They generally bring more credibility to the table by showing that the childcare business is a well-managed business:
- Having current monthly financial statements
- Not having too many unusually “add-backs” to the profits.
- Detailed information on competitors (for example, from a “secrete shopper”)
- Long-term employees and good staff that can manage the childcare center in the owner’s absence.
- Customer loyalty – Children that have been enrolled for many years
- Management reports & data driven metrics (ProCare, ChildcareCRM, …) – Having copies of your various day-to-day, weekly, and monthly management reports available for lenders helps the lender because he/she will know that your business is run as a business and not by the seat of your pants.
- Deferred maintenance – The lender will require a real estate appraisal before a loan is issued, so if there are deferred maintenance issues that can be completed before the appraisal, it will help the valuation and loan terms.
- Growth potential – Projections based on concrete believable plans as to how to increase enrollment and/or profits.
- Traffic counts, demographics and size of the market, unemployment rate in the local area…
- Information on government programs supporting childcare
- The economy – When the future is rosy, lenders don’t mind a bad past. When the future economy is expected to be down or uncertain, it increases risk and a good past is discounted. The best time to get a loan is when the childcare center is having record revenues and profits and the next year looks just as good.
- When a lender knows that they are competing against other aggressive lenders who offer competitive interest rates and terms.
- We have a database of all SBA loans issued since 1990 (This includes over a million SBA loans with interest rates and terms, loan amounts, borrower, and lender data). When Childcare Brokers (representing you, as the potential borrower) is requesting a loan from lenders, we know about every single SBA loan issued by those lenders, as well as all lenders, and ask that a lender match the interest rates given by aggressive lenders to other childcare centers.
- When a compelling Loan Request Proposal is prepared. Most potential borrowers are not well prepared when asking for a loan, so a high level of preparation bolsters a potential borrower’s level of success in getting a loan and allows for a quick lending decision. A compelling Loan Request Proposal educates the potential lenders on the childcare industry, the childcare center, and its owners. The industry data should include information on: cost structure benchmarks, barriers to entry, technology & systems, government programs, …
Basic Information Needed By Lenders:
- Information on the real estate collateral.
- Income statements – the last three years plus the Year-to-date
- Balance sheets – the last three years plus the Year-to-date
- Business Income tax return – the last three years
- Borrower(s)’ Personal Income tax return – the last three years
- Borrower(s)’ Personal Financial Statement (PFS) – If you have a current PFS (within 60 days), please provide. If you don’t have one, you can use the SBA personal financial statement as a common statement to provide information to all lenders.
- Resume or background information on borrower(s) so to indicate to a lender that the borrower(s) have the background to be successful
- Tri-Merge credit report(s) on borrower(s) – A tri-merge credit report, or 3 in 1 credit report is just what it sounds like. It’s a report that combines the information from the three major credit reporting agencies, and presents it in one report. If you don’t have a Tri-merger credit report, here is a website to get one, but, really you can get it anywhere. Lenders use the borrower’s provided credit report to pre-qualify loans without impacting the borrower’s credit score. When the borrower has selected a lender that is highly likely to provide the loan, only the lender selected will pull the borrower’s credit.
Try to imagine yourself as a commercial lender. If you were to receive a Loan Request Proposal from Childcare Brokers with all of the above information. Ask yourself: Would you be able to make a loan decision quickly? Would you be more likely to say “Yes” to the proposed loan? Would the agreed to interest rate likely be lower than if compared to if you had gotten a loan request that was not organized and did not include this information?
Based on a survey of SBA lenders, when potential borrowers were requesting loans for business acquisitions, about 84% of initial loan declines are due to a poorly prepared loan request presentation.