Ever find yourself having trouble finding the right “home” for your deals? Getting decline after decline? Maybe your customer doesn’t have perfect credit, great “comp” credit, 25 years TIB, cash flow like Bill Gates, or enough cash and/or collateral to secure the transaction like Fort Knox? You’re thinking ‘JUST TELL ME WHAT YOU WANT’ (or as any good Spice Girls fan girl/boy would know “TELL ME WHAT YOU WANT, WHAT YOU REALLY, REALLY WANT”. Well good news we can tell you exactly what BlackRiver wants…
More GREAT news – BlackRiver wants the same thing as YOU: “I wanna, I wanna, I wanna, I wanna, I wanna really really really wanna…. more approvals, more contracts funded and less work (er…something like that)”
How do you make that happen? How can you start getting more approvals, funding more deals, and working a lot less? How can you make working with a funding source feel like a walk in the park? Let’s start by taking a look at how BlackRiver underwrites each transaction (spoiler: it’s really simple).
We review three aspects of each submission: credit, cash flow, and the asset. If one of those aspects is weak, we require the other two to be stronger (of course on a relative basis). And vice versa.
- Credit– How have they paid everyone else? We have no minimum credit score (except for transportation, which is min. 625 CBR) and don’t expect 700-800 perfect credit history. BUT, we do closely review the credit history of each business owner in order to come to a conclusion as to the likelihood that they will honor their contract and pay us on time. Fortunately and unfortunately this is a subjective process. A 575 credit score does not necessarily get lumped in with all other sub 600 scores and a strong score does not necessarily mean we are ready to provide the worlds’ greatest approval conditions. Rather, we carefully look at the number of open & paid trade lines, the significance of those trades and the nature and timing of any derogatory accounts. We also review the inquiry history, and are allergic to unsatisfied judgments and large open tax liens. PLUS, we DO read the “story” you provide about the credit history. Seriously, we read them all.
- Cash Flow – Can the customer afford a payment (& still have a little wiggle room when fit hits the shan)? We have no minimum revenue requirement, but when the credit and asset are weaker, we need to see stronger $$$ (typically 1-2X equipment cost in monthly deposits). The flip side is, we also fund transactions where we don’t require such strong cash flow because the credit and asset are stronger. In this case we just want to see consistent deposits and ending balances that tell us – hey, this person knows how to manage a business and save for that rainy day!
- Asset – 1st, what is the equipment and how much information have we been provided? Since the asset is important to us we need to know the make, mileage/hours, etc. if it is a truck or a skidder and if it is a R949T-65S rollover flux capacitor we need to understand what it does and how it helps the business. 2nd, it is clear that this equipment makes the business more $??? Wanting equipment and needing equipment that actually makes a business more money are two very different propositions. I WANT a 911 turbo but I if I’m delivering furniture for a living I NEED a reliable box truck. Further I might WANT a new $114,000 Peterbilt with shiny new wheels but I probably NEED a well maintained $45,000 truck that will get the job done just fine. 3rd, how easily can I get this back and sell it if I don’t get paid? We will consider any type of equipment – no equipment restrictions! However, we love assets that are easier to sell in a secondary market. Think titled vehicles, construction, auto service, landscaping, medical and manufacturing equipment. BUT, we could also fund a purple puppy penguin pail…. if the credit and cash flow were there. Seriously, we have funded some pretty illiquid “equipment” based on strong credit and cash flow!
Make sense? Let’s take a look at a few examples:
Approval Example #1:
Credit: Good. Not great. 685 score. Paid a credit card late like twice but for the most part the dude seems to pay his bills.
Cash Flow: Good. Deposits = 1.5X the cost of the equipment. Ending balances = around 4X an estimated payment
(I know what you are thinking…why was this customer applying for financing with BlackRiver but I promise #3 is the kicker)
Asset: Turf. As in artificial turf that is literally glued to the ground and is 1,000,000% un-remarketable (which I’m not sure is even a real word, but you get the picture, right?). If this guy doesn’t pay, we are never, ever going to be able to resell the asset. Basically our a** is grass. Haha. I had to.
Verdict: Good credit, good cash flow, crappy equipment. Approved!
Approval Example #2:
Credit: Poor. 603 credit score. Several small medical collection accounts, BK that was discharged, several accounts have been 30 days late – classic “slow payer” but seems to be trying to pay the most important bills.
Cash Flow: Good. Deposits = 2x the equipment cost. Ending balances = 4-5x an estimated payment.
Asset: Good. Great actually. A dump truck. He knows exactly how much $$$ he can make with each load. Is buying from a reputable vendor, the truck is in good condition, and has low mileage. The LAST THING we ever want to do is repo, but, should we have to, we know how much the truck is worth and would have no problem finding a buyer.
Verdict: Poor credit, good cash flow, good equipment. Approved!
Approval Example #3:
Credit: Good. 685. They ain’t perfect but they pay their bills and even have a few good comp trade lines!
Cash Flow: Not great, but OK. Their monthly deposits are consistent and they always keep some money in the bank. They probably even have a good stash of mattress money we don’t know about.
Asset: Incredible. An auto service equipment package that allows them to provide a new service they are currently farming out. They know they can almost double the $$$ they make each month with the new equipment and we know where it is and what we can sell it for.
Verdict: Good credit, weaker cash flow, great equipment. Approved!
So what do we NOT want?
Poor credit, poor cash flow, great equipment.
Good credit, poor cash flow, poor equipment.
Poor credit, good cash flow, poor equipment.
Our true niche, where our proposals, terms and pricing are most competitive and subsequent closing ratios and process are best for us and for our origination partners, is comprised of transactions that are in between the large first and last funding sources and the 50% down, 2:1 asset based funding companies. In addition, because we require more structure we are often able to provide more competitive pricing and/or more approvals than funding sources that require less money at closing. We reward our customers for bringing more to the table. More down = better deal for the customer.
COMING SOON (like next week): How does BlackRiver typically structure transactions AND our credit matrix video coming to you live (actually prerecorded but one person in it did appear in an Oscar nominated film but NBD) from our global headquarters in the suburbs of Austin TX!!!!
Trivia Question of The Week:
The first person to provide the nicknames for all 5 Spice Girls in the comments below wins a $25 gift card!