Financial Products: Application Only
Typical Required Information:
- A completed and signed Credit Application.
- Copies of the last three months summary page from the most significant business bank account(s).
- A detailed description of the equipment.
- Information on the equipment vendor or seller of equipment.
Generally speaking the rates for the Application Only product are priced between 1.5% and 2.0% higher than traditional full financial disclosure leases and loans and in many instances formal decisions can be made within a few hours of our receipt of a completed application. Larger or more complex requests will take longer.
Application Only financing is an automated credit decision process predicated on a specific group of credit criteria which has exhibited certain performance characteristics historically. Each lender will individually determine which criteria they will use and how much weight they will attribute. In essence each commercial lender determines how relevant each aspect of a credit profile is to them and which ones are the most significant to them in determining the likelihood of a customer paying their lease or loan. Millions of commercial loans have been analyzed by various credit reporting and analysis companies such as Dun & Bradstreet, PAYNET, Experian, Trans Union and others. Based on the millions of leases and loans studied certain trends have been revealed.
These are the most common criteria used by commercial lenders. Each lender has selected all or some of these criteria and assigned a value to each item based on that lenders unique credit experience. For example some commercial lenders feel that the time in business is the most important criteria while others feel that the owner’s FICO score is more critical. Regardless each lender has constructed a formula that is suited to their own unique credit philosophy and the results are an absolute PASS or FAIL.
Typical Decision Criteria
- Time in business – higher score for longer time in business
- D&B issued PAYDEX score – higher score will occur if your trade creditors are paid within terms
- PAYNET issued MASTER score – higher score will occur if your term debt has historically been paid timely
- FICO score of the business owners and personal guarantors – most Application Only lenders have established a minimum FICO score requirement. These generally range from 640 to 720.
- The amount of outstanding revolving debt and the amount of available revolving debt will also affect your FICO score but many lenders have established a maximum amount of open revolving debt and a minimum amount of available revolving credit.
- Homeownership – many lenders will not lend to any small or proprietary business if the owner of that business does not own a home.
- Payment history of all real estate transactions. Most lenders will simply decline any request for credit where the principals or guarantors have made late payments on any mortgage.
- The presence of any collection activity, debt compromise, tax liens or open judgments will, in some cases, be an automatic decline.
- The average available balance in commercial bank accounts – generally three consecutive months
- Industry – lower scores for less traditional industries (pornography, tanning salons, stand-alone kiosks, bars, etc……) and higher scores for more traditional industries (manufacturing, production, medical, information technology, etc…)
Pros:
(1) fast decisions
(2) automated decisions
(3) no financial information required
Cons:
(1) automated decisions
(2) higher rates
(3) restrictions on the amount of credit extended.
The Charter Capital Process
As soon as Charter Capital receives a completed and signed Credit Application and copies of recent business bank statements we review the request for reasonableness and begin the credit process. This process generally consists of:
- Ordering an electronic Dun & Bradstreet report and/or a PAYNET report on the business,
- Ordering an electronic consumer credit report on the business owners who will be guarantying the obligation,
- Verifying with the Secretary of State that the business is legally in existence and in good standing, and
- Reviewing the vendor and the equipment to determine acceptability.
We then review the results and if we discover anything that might present a challenge to approving the financing request we contact our customer and discuss that challenge. We then select the most appropriate lending partner (and a backup) based on the results of our credit investigation and our extensive knowledge of our lending partners and what they will do and what they won’t. This entire process should take no more than a few hours.
When we select the appropriate lending partner and send transfer a copy of our investigationelectronically. Most lenders that offer Application Only financing review this data electronically and automatically score (approve or decline) the results within their own systems.
This process has been designed to provide commercial lenders with a custom standard for credit approval that is measurable and that can be determined electronically. Each specific item above is given an individual score that is attributed by management. The score is then totaled and if it exceeds X the request is approved and if it is lower than X it is declined. Some commercial lenders have a human review all or some of the electronic decisions but most simply allow the system to approve and decline Application Only financing requests.
Generally speaking higher scores are believed to be lower risk and therefore are afforded lower rates. Although these systems are inherently flawed they are constantly reworked for greater efficiencies and smarter decisions. When managed properly and when the most appropriate commercial lender is selected most borrowers can get the appropriate decision, rate and structure they deserve.