Applying for a loan involves providing a lot of very personal information: Credit history, bank statements, tax returns, and more. But we wouldn’t ask for it if it weren’t an important part of making a decision about your application.
The information you provide helps us understand your business’ overall story and make an assessment of how a loan will help your business grow. The minimum information we ask for — which includes two years of business federal tax returns, current business debt information, one year of personal federal tax returns for each individual that owns 20% or more of the business, and six months of business bank statements — is all to help us paint a detailed portrait of your business (including you!).
In order to help keep our business loan interest rates fair, we need to underwrite our loans carefully and make sure we’re lending to those we feel confident can repay the money. While other lenders may ask for less information and documentation, they also typically demand sky-high rates to help compensate for those who will inevitably default.
One of the reasons we request bank statements is that they give us a real time look at the cash flow of your business. Healthy, consistent beginning and ending balances usually reflect an ability to support loan payments, other debt, and additional expenses. If credits into your business are greater than debits out, it shows that your business is growing — which is a great sign that a loan will help maximize your business. We also watch out for red flags such as overdrafts and returned items, which can be signs of poor cash management.
Although we strictly lend to businesses, we also weigh your personal credit history in our evaluation. A strong personal credit history — few or no late payments, few credit inquiries, and a low credit utilization rate are great indicators that someone is financially savvy and responsible, and will pay back our loan without a problem.
Finally, we also take into account your business’ outstanding loans and your monthly payments on them. The purpose of this is twofold: one, if you’re going to use your Funding Circle loan to refinance your more expensive existing debt, it helps us to understand what sort of offer you would need from us in order to adequately cover your repayment. Two, having a clearer picture of your business’ debt position helps us understand your needs and allows us tailor our offer to save you the most we can.
We know that collecting all of this information can be annoying — who has time to go through file cabinets and call your accountant when you have a business to run?! If you ever have a question about the information we’re requesting, reach out to your account manager. Transparency is important to us, and we’re always happy to clarify or explain.
Chris Capecelatro is Funding Circle's U.S. director of underwriting. Previously, he managed credit risk for a global casualty insurer in addition to working in commercial lending for a local bank.