Red Flags to Avoid When Searching for Funding

While finding funding for your business is a long, involved process, there are some common “red flags” that underwriters recognize and monitor that could have a dramatic impact on the likelihood of success in your search. Here are some of the most common red flags underwriters will be looking for, which you should be aware of:

• Over-borrowing or under-borrowing
• A recent change in business ownership
• A weak or inexperienced management team
• Aggressive tax management on financial statements
• Multiple business incorporations by the same owner in different states
• No fixed address for the business
• A weak or nonexistent business plan
• A lack of references from suppliers, clients, etc.
• An effective tax rate far below the industry standard
• Improper or aggressive capitalization of expenses
• Lying to your broker or lender about your credit score before a credit check
• Writing off personal expenses as business expenses
• Selling off property or equipment without adequate explanation
• Allowing property or equipment to become fully depreciated without capital expenditures to replace the losses
• An unexplained slowdown in your company’s cash cycle or operating cycle.