Ray Juncosa, a consultant with the Florida SBDC at FIU, specializes in finance and helping small businesses get access to capital. Juncosa spent four decades as a banker, where he generated close to a billion dollars in loans and held senior management positions, and is an adjunct professor. He is also the leader of the SBDC Access to Capital at the state level and involved at the national level too, so he is very well versed in loan and investment opportunities.
It’s important to understand how lenders evaluate borrowers. The process of accessing capital is a quantitative analysis of your business, Juncosa says, “and you as small businesses need to learn to embrace your numbers.” That means understanding your numbers, your margins, your break even so that you can best represent your company when you approach a lender.
“At the end of the day, you need to learn to speak the financial language,” Juncosa says. That’s a topic he helps small business clients daily at SBDC at FIU, the small business development center within the university’s College of Business that offers no-cost business consulting to small businesses in Miami-Dade and Monroe Counties.
What are the 5 C’s?
To begin looking at the process as a banker would, it is important to know your 5 C’s of credit – Character, Capacity, Collateral, Condition and Capital, he said. Each one holds insight into how lenders are evaluating your business.
Character: This one goes to the small business owner’s background experience and his or her demonstrated management of credit — your credit history, Make sure you are always checking in periodically on your FICO score.
Capacity: This one focuses on your capability to repay loans and looks closely at factors like cash flow and the ability to repay loans. The bank will go through certain levels of analysis of your personal and company cash flow, operational efficiency and profitability, Juncosa says.
Collateral: Collateral is a secondary source of repayment.
Condition: This C evaluates the industry of the borrower’s business, what barriers of entry they may have, what’s going on externally that could impact your business.
Capital: That’s your skin in the game – assets minus liabilities equals capital. Are you putting money back into the business?
Recommendations for success
What are some of Juncosa’s recommendations for achieving bankability? Nunber one is maintaining a good credit score. Also, avoid too much inventory, he says. Understand performance margins, cash flow, and managing debt, and understand financial statements.
Applying this to the process of applying for an SBA loan, Juncosa says you should prepare a narrative, provide financial statements of course, and understand the loan terms. It is also important to have a strong business plan.
Want to know more? Listen to the webinar here.