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Get Credit Where It's Due

When borrowing money for an expansion, upgrade or new facility, lenders are looking for credit, cash flow, collateral and character.

So you are expanding your fitness center, or opening another one - congratulations! Now you're looking for financing to complete the process. Since you're already in business, it should be simple to get financing for this project, right? Well, maybe.

There are great sources of funds out there, but the way to access them is to do your homework and prepare - you need to understand why banks and finance companies want to lend. Banks are in business to make the highest returns with the least amount of risk. In other words, they want to make a profit, just like you do.

Lenders are looking for the four Cs: credit (previous payment history), cash flow (liquidity to repay the new debt), collateral (outside assets to repay the money) and character (your business reputation). Your ability to get an approval at the rates you want is based on how your financing source views these characteristics. Your job is to present your four Cs in the best light possible.

So, what information should you be presenting to your financing source? That will depend on the bank or finance company, so you should know their specific requirements. However, there is some common information that you can gather in advance.


Depending on how long you have been in business, you might see if it is possible to obtain a "Corporate Only" credit approval - meaning one that does not require a personal guarantee. Generally, these are available for companies that have been in business longer (eight or more years, in most cases), have done other corporate-only borrowing and have superior financial strength. Banks are reluctant to grant these types of approvals to closely held companies, but it's not impossible. If it is six to 18 months before your expansion, you might consider getting a smaller corporate-only loan or lease so that you can demonstrate that you have a payment history on a previous corporate-only transaction. Other than that, the best way to get this type of loan is to have overwhelming financial strength in your business. Also, make sure all of your payments to your suppliers are timely. Lenders get information about your company from outside sources like Dunn and Bradstreet - companies that provide ratings based on information they gather about you from many different places.

Banks and finance companies will also look at your personal credit. Knowing what is on your credit report before asking for money is important. While lenders will look at your FICO score, they will also look at the details of your credit file. Delinquent or slow payments, especially on loans, leases and mortgages, are red flag items. The other big item is debt, especially revolving debt like credit cards. Lenders look at both the amount of credit card debt and the percentage of debt (the more your cards are maxed out, the more it affects you). Also, lenders are increasingly concerned about home equity lines of credit, even though they are secured by real estate. The earlier you resolve challenges, the better; your credit scores are affected by your credit habits over time.

Cash flow

Banks determine your ability to pay by looking at your financials. For larger transactions, they want to see your last couple of tax returns or audited financial statements, and a current income statement and balance sheet. If you take most of the profits out of the company, you should plan on providing personal tax returns and a personal financial statement to verify where the profits go. When presenting financial statements, it is better to be conservative. For example, if your personal financial statement shows you have $50,000 in the bank, but your tax return shows you made $18 in interest income, your lender will not believe that you saved $50,000 unless you explain why you didn't earn any interest. It is easier to explain a potential issue before they see it, than try to explain one after they have turned you down.

Banks will use your previous tax returns or audited financial statements to evaluate your funding request. If your current income is substantially different than the previous tax returns, you should be able to explain the differences and have evidence to back that up.

Normally, funding sources will evaluate your financial data through several financial calculations. These include the following:

Net worth. To give you the best rates, a lender looks for a balance sheet that shows your company has significant equity - their preference is three to five times the amount you want to borrow. So, if you were looking for $100,000, then you should have $300,000 to $500,000 of equity in the company. Also, if your financial statement includes a lot of intangible assets (like goodwill), a lender will subtract that from your equity calculation.

Current asset to current liabilities. Assets to liabilities balance sheet numbers show if you have the ability to handle your current obligations. In general, your current assets should be greater than your current liabilities.

Cash flow. Cash flow information comes from the income statement. The lender wants to see if your existing business makes enough money to cover the new debt. The calculation is done by taking your net income and adding in any depreciation and amortization. That number should be greater than 12 months' worth of payments on your new financing.

If you don't meet all of the above criteria, you need to explain any differences, and give the lender evidence as to why it makes sense for them to approve your transaction. The more you are in line with the calculations, the better chance you have of getting the best rates and terms.


Lenders will often lend to strong companies without other collateral. However, they prefer to have additional sources of repayment, and may give better rates with collateral. For businesses, that may mean pledging assets like real estate, securities or cash. The need for doing so may be based on how well you fit the other three Cs, and if you are willing to exchange a lower interest rate for giving up control of assets you already own.


Character is intangible. Part of it is tied up in your credit references by demonstrating that you have paid your previous obligations in a timely fashion. Character is also about sharing your story, why your fitness center is successful, what have you done in the past and what your plans are for the future. Like financials, this is an area to show confidence, but not exaggeration. If you owned one facility for six years and are opening a second one, this isn't the time to tell your lender you plan to open four more fitness centers and borrow an additional $1 million over the next two years. It's really about letting your lender know that it is in their best interest to lend to you.

Think long-term

Sound like a lot? Well, it might be. But it will be worth it in the long run. Wouldn't you like to have two or three top-flight financial institutions bidding on your business because they want to grow with you in the future? So, gather your financial information and evaluate your credit early. If you are unsure about your financial ratios, get some impartial advice.
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