For real estate investors seeking the lowest-cost financing and funding in the New Paradigm, knowledge of the new rules is key.
Business credit is the lifeblood of real estate investing and business entrepreneurship. It’s the fuel that powers dreams into reality. Yet, for many real estate investors and business go-getters, navigating the murky waters of business credit can feel like sailing through a storm without a compass.
In this article, we’ll delve into the intricate world of business credit, unraveling the mysteries of the Old Paradigm while shining a light on the transformative power of the New Paradigm.
Understanding the Old Paradigm
To understand where we’re going, we must first understand where we’ve been. The Old Paradigm of business credit, often referred to misleadingly as “corporate” credit, was once the cornerstone of small business financing. Dating back to the pre-2008 era, this paradigm relied heavily on traditional metrics such as the Dun & Bradstreet PAYDEX Score and manual underwriting processes. In those days, securing business credit was a grueling process requiring as much “full documentation” as a conventional mortgage—and required a lot of finger-crossing and praying for mercy to the funding gods.
The Fall of the Old Paradigm
But then, the financial crisis of 2008 struck like a wrecking ball, shattering the foundations of the Old Paradigm. Suddenly, lenders became wary of extending credit to small businesses, and the PAYDEX Score lost its luster. As the dust settled, it became clear that the days of relying on heavy documentation were over, and a new era was dawning.
The Pitfalls of the Old Paradigm
In the heyday of the pre-2008 Old Paradigm, entrepreneurs could secure business credit without breaking a sweat. But therein lies the danger. With lax underwriting standards and a lack of scrutiny, many businesses found themselves drowning in debt they couldn’t repay, and lenders discovered that even the documentation they required as part of the loan could be “fudged.” It was a cautionary tale of the perils of unchecked credit and the importance of relying on something more dependable than “documentation.”
The Evolution of the New Paradigm
Out of the ashes of the Old Paradigm rose the New Paradigm—a dynamic and evolving landscape shaped by the lessons of the past. In this new era, lenders began to rely less on traditional documentation and more on automated underwriting processes. Lenders discovered that “loan payback” was more dependable if they lent to the “owner” of the business rather than to the business itself, even if the credit line or loan did not report to the owner’s personal credit profile.
The focus shifted from PAYDEX Scores and business documentation to measuring borrower behaviors as reported on personal credit profiles, ushering in a new era of transparency and accountability.
Navigating the New Paradigm
For real estate investors seeking the lowest-cost financing and funding in the New Paradigm, knowledge of the new rules is key. No longer can businesses rely solely on outdated metrics to secure credit. Instead, they must embrace a holistic approach that encompasses both personal and business credit profiles. By understanding the nuances of automated underwriting and leveraging their personal borrower behaviors, real estate entrepreneurs can position themselves for financing and funding success in the New Paradigm.
The Benefits of the New Paradigm
Although the transition from the Old Paradigm to the New Paradigm may have been challenging for those who didn’t know it was happening, it has ultimately brought about positive change for all business borrowers—and increased the amount and frequency of approvals. With greater emphasis on personal borrower behaviors and automated underwriting processes, business borrowers now have access to a wider range of powerful and versatile financing and funding options. Never before has it been easier to obtain prime+1%, stated-income, unsecured, top-tier bank business credit lines and loans.
Building a Fundable Business Credit Profile
In the New Paradigm, an optimized business borrower profile that passes muster with all 19 business databases lenders use to validate and verify business data is essential for securing funding. By focusing on these key business borrower behaviors. and avoiding the funding landmines and lender “tests,” you can now predict your funding approvals before you hit the submit button on your business credit applications. This allows you to secure the funding you need to grow and thrive.
Leveraging Personal Credit for Business Success
In the New Paradigm, your personal borrower behaviors play a crucial role in acquiring business financing and funding, especially the inexpensive and versatile business credit lines and loans from top-tier banks. Lenders now look to your personal borrower profile to measure how you treat the money loaned to you by other lenders.
By understanding how lenders define a fundable personal borrower profile and managing your borrower behaviors strategically, you can enhance your “approval-readiness” in the eyes of lenders and improve your chances of securing the highest and most frequent financing and funding approvals.
Access to FICO Team Members
David Smith, FICO’s Small Business Lead and acclaimed subject matter expert on FICO’s Small Business Scoring Service (SBSS—the premier business credit score engine) has been a regular guest at our twice-weekly Funding Hackers Implementation Support Group Coaching call. He has also been a guest on the Get Fundable! podcast and coordinated many meetings between other FICO team members and me.
He has been a true guide to me and my team in our mission to educate and coach real estate investors and business owners seeking ways to acquire the financing and funding they need to grow their businesses the way they have always wanted to—by leveraging the lowest-cost and easiest-to-deploy financing and funding available in the business credit marketplace. Smith’s insights on the evolution of business credit approval requirements have been paramount to the continued success of our clients and community members.
In the ever-evolving landscape of business credit, awareness is key to staying ahead of the curve. Whether it’s leveraging new technologies to streamline your funding approvals or recognizing how to optimize creative financing solutions as they become available, you deserve to be a part of a community that has not only mastered the rules of the financing and funding game but also has access to the “rule makers” who can give you the intel to stay on top of this ever-changing environment. That community is the Get Fundable! Funding Hackers Member Community. To find out more, go to BusinessFundingSummit.com and find out how you can Get Fundable! and then Get Approved!
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