Qualification Criteria
In approving a loan, BiG adheres to four general principles:
- Determine the customer's needs, not the customer's desires;
- Ask for collateral appropriate for the loan product;
- Match loan terms with long- and short-term needs
- Match repayments with cash flow
Specifically, we first evaluate four areas: cash flow, credit, collateral, and character. If after looking at these four we are undecided, then there are a several additional factors that can push the application to acceptance, including: woman or minority ownership; low-income job creation; location in a low/moderate income census track; collateral valued at over 50% of loan amount; and, having 100% matching equity.
Cash Flow
"Cash flow" refers the balance of income and expenses over time. If your income minus expenses comes out positive, then you are said to have "cash flowed" for the time period in question. Successful loan applicants are expected to demonstrate positive cash flow sufficient to repay the loan. Both personal and business cash flows are carefully considered.
Credit
There is no magic number that automatically tells us to approve or decline a loan application. We do not like to see money owed past due, large numbers of current derogatories, or open bankruptcies-generally, we are more concerned with bad debt than the amount of debt. When we do see issues of concern, we will give you a chance to explain any extenuating circumstances and to reach work out agreements with your creditors. Bankruptcies are required to be dismissed for at least two years (preferably more), during which time we expect to see that you have worked to rebuild your credit.
Collateral
BiGAUSTIN does not require 100% matching collateral for its loans. Naturally, a fully collateralized loan will be easier for us to approve-but we only require 50%. Collateral includes all business assets and personal vehicles that you own outright. We do not take any other personal assets as collateral. We will file a lien on the vehicles and on all business assets, which we will accordingly release once the loan is paid back in full. BiG will also consider land, receivables, inventory, and CD security. Following Texas law, we cannot use a homestead as collateral.
All loan recipients must carry life insurance with BiG listed as a loss payee throughout the term of the loan.
Character
Character, as a subjective measure, is extremely difficult to assess consistently. We do so by looking for positive business and/or landlord references, a clean work place, and experience in the business. False or unrealistic statements on the pre-qualification application or business loan application, public records and outstanding legal issues will count against an applicant's character.
A Note On Startups
Startup businesses are our greatest risk, as there is little or no historical cash flow information for us to base our decision on. For this reason, we require that startup entrepreneurs have some source of income other than the business-from a second job, a spouse, retirement, savings, etc.
Having said this, we do prefer to work with businesses that have at least 3 months of sales already. If the business does not have 3 months of sales, then we are forced to look more closely at the other criteria. This means that both credit and collateral must be excellent, including the use of a vehicle or cash security for collateral. We also insist that the applicant already have relevant industry experience.