Funding Assessment Report

WELCOME TO DIRECT BUSINESSLENDING’S FUNDING ASSESSMENT

According to the SBA (Small Business Administration), the number one reason why a business fails is because of funder capitalization.

Having lack of money is the main problem startups or growing businesses face. Nothing is more important & vital to the health of a small business than having the right financing in place.

Our Funding Assessment and family of products are

very comprehensive and intuitive. They, along with our

expert Sr. Funding Advisors will breakdown & guide

you through each of the steps in obtaining Business

Financing in this type of lending environment.

By using our step-by-step process and relying on Client

Services team, we’ll provide you all the help needed to

ensure everything within your business profile is in

compliance with typical underwriting guidelines.

FUNDING ASSESSMENT BREAKDOWN

Below is a brief overview of what most lenders will require to see in order for your business to be considered compliant.

• Entity Structure: Your business needs to be open, active & in good standing.• Federal EIN: Your EIN (Employer Identification Number) must match your State

filing.

• Bank Account: An open bank account in your business name.

• Business Licenses: Get all applicable licenses.

• Business Phone: Your business must have a separate phone number.

• Physical Address: Your business must have a physical address.

• Directory Listings: 411, yellowpages.com, whitepages.com

• Personal Credit Profile: A clean credit history is a must for business financing.

• Dun& Bradstreet Account must be established with good credit rating.

• Experian Business Account must be established with good credit rating.

• Equifax Business Account must be established with good credit rating.

• Business Credit Profiles Depth:

o Credit Cards: At least 3 business credit cards with payments made early.

o Vendor Credit: At least 5 vendor lines of credit with payments made early.

o Comparable Credit: A larger loan from a non-bank lender with payments made early.

• Business Plan: A road map outlining your success.

• Loan Package: A correctly presented loan package with your business plan and revenue projections.

Below is a brief overview of what most lenders will require to see in order for your business to be considered compliant.

PERSONAL CREDIT SECTION

EducationBecause you are trying to obtain a small business loan, lenders rely heavily on your personal credit. Your personal credit proves your worthiness as a creditor & shows your ability to handle such financing. When an Underwriter is reviewing your personal credit it’s not just the score they are looking at.

An Underwriter will heavily analyze your personal credit profile in its entirety. Underwriters will make the basic assumption that you operate your business in the same fashion as you manage your personal finances. Underwriters are hired and trained to protect the lenders best interests & it’s their job to find reason to decline your application.


When an Underwriter is reviewing your personal credit it’s not just the score they are looking at.

An Underwriter will heavily analyze your personal credit profile in its entirety.

Underwriters will make the basic assumption that you operate your business in the same fashion as you manage your personal finances. Underwriters are hired and trained to protect the lenders best interests and it’s their job to find reason to decline your application.


There are 3 main credit bureaus: TransUnion, Equifax and Experian.

The majority of lenders will review only your Experian credit report and use TransUnion and Equifax as disqualifiers. It’s been seen, however, that some lending institutions will pull all 3 bureaus in their initial underwriting. This is why we recommend having all 3 credit scores above 680 before making any application for financing. Having all 3 credit scores above 680 and not just an average of 680 across all 3 bureaus will improve your likely hood of funding.

In our ongoing evaluation of the current lending market, Lenders right now typically want to see an applicant’s credit score above 720.

A credit score above 720 is normally a candidate for optimal funding, which is what we are trying to achieve.


Your credit score predicts the statistical chances of a consumer becoming 90 days late or more on particular loan obligation. Credit scores range from 300-850 for Classic FICO. Obviously, the higher the score the less chances the consumer will default.

From the below diagram, which is outlining the odds of Consumers going 90 day late, we can see why Lenders weigh heavily on your personal scores.


Referencing the chart, it’s stating to creditor that if an applicant has a 800+ FICO score then they know that only 1 out of every 1293 people with a score of 800+ will default on that loan. This is why people with higher FICO scores get better rates. FICO scores are the most used credit bureau scores in the world. They heavily guard the algorithm used in determining your score, however, they have provided us an overview of what is used in the calculation. The below chart gives us a breakdown of the components used to determine your FICO credit score. When analyzing these components, it’s pretty evident what the company looks for when determining the best scores. Here is a breakdown of each category in order of importance.

PAYMENT HISTORY• Account payment information on specific types of accounts (credit cards,

retail accounts, installment loans, finance company accounts, mortgage, etc.)

• Presence of adverse public records (bankruptcy, judgments, suits, liens, wage attachments, etc.), collection items, and/or delinquency (past due items)

• Severity of delinquency (how long past due)

• Amount past due on delinquent accounts or collection items

• Time since past due items (delinquency), adverse public records (if any), or collection items (if any)

• Number of past due items on file

• Number of accounts paid as agreed

PAYMENT HISTORY

Your payment history has the most weight in the calculation. In reviewing the above breakdown you may be asking yourself “How long do delinquencies stay on my report”? Bankruptcies typically show on the report for ten years. Tax liens stay on for seven years from the date satisfied.

Late payments and judgments show for seven years, and charge-offs are on for seven years from the date of the initial late payments.

AMOUNTS OWED

• Amount owing on accounts

• Amount owing on specific types of accounts

• Lack of a specific type of balance, in some cases

• Number of accounts with balances

• Proportion of credit lines used (proportion of balances to total credit limits on certain types of revolving accounts)

• Proportion of installment loan amounts still owing (proportion of balance to original loan amount on certain types of installment loans)

AMOUNTS OWED

The second most important aspect is the amounts owed to lenders otherwise referred to as Debt Ratio. You want to keep your debt ratio low. Typical lenders don’t want to see your debt ratios higher than 30% and not to exceed 50%. You want to keep this number low in comparison to your total credit available. If your report is showing that your debt to income is over 50% it will become difficult to obtain funding as the Underwriter will see you are highly leveraged. To have the highest probability of getting your application approved, your debt to income ration should be below 30%.

LENGTH OF CREDIT HISTORY

• Time since accounts opened

• Time since accounts opened, by specific type of account

• Time since account activity

FICO also stresses length of credit history. The longer, older and more deep a credit history the better the score is.

An established credit file is usually classified after year 4, any earlier and the credit is considered un-established. An un-established credit profile will make it difficult to obtain business financing.

NEW CREDIT / INQUIRES

• Number of recently opened accounts, and proportion of accounts that are recently opened, by type of account.

• Number of recent credit inquiries

• Time since recent account opening(s), by type of account

• Time since credit inquiry(s)

• Re-establishment of positive credit history following past payment problems

NEW CREDIT / INQUIRES

When calculating a credit score, FICO doesn’t want to see too many new credit lines or inquiries. The more inquiries you have your credit the worse your score will be.

Inquiries are heavily reviewed by all Underwriters. Inquiries show an untold story, or so the Underwriting thinks. If you have too many inquiries on your profile, Underwriters view that as a trend for potential desperation.

If you have too many inquiries on your profile, Underwriters view that as a trend for potential desperation. If you have excessive inquiries being reported, the lender assumes that your business is struggling or that you personally are in desperation. Another reason why an Underwriter heavily reviews your inquiries is because Business Lines of Credit don’t appear on your personal credit. They will look for other lending institutions that offer Business Lines of Credit and assume you have received funding and potentially trying to go around the system and obtain more funding than qualified for.

TYPES OF CREDIT USED

• Number of (presence, prevalence, and recent information on) various types of accounts (credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.)

The last component takes a look at the types of credit: unsecured credit card debt, automobile loans, mortgages, consumer finance, etc. FICO likes to see equal utilization of all types of credit.

TYPES OF CREDIT USEDLending institutions want to see extensive use of your credit; however, they don’t want to see extensive debt. They want feel confident that you can handle a high line of credit. If your report shows that you have 2 credit cards and 1 auto loan, they will not be very inclined to offer you a high line of credit.

There are a few other components that an Underwriter will review within your credit report that do not affect your FICO score but could potentially cause you to get declined or hinder you from obtaining optimal funding. Below are the components and reasons why Underwriter’s use them in making a decision.

EMPLOYERS

• Current and past Employment history

Underwriters will review your employment history for credibility. They want to see that your business is your full time job. If it is being reported that you work at McDonalds but you are applying for a business loan, under your business, the Underwriter is going to see this as a major red flag.

ADDRESSES

• Address History

It’s important that all 3 bureaus address history reporting the same as what you are disclosing on your application.

ECOA CODES• Equal Credit Opportunity Act

The ECOA Code describes the borrower's relationship to a certain trade line.

ECOA codes identify a trade as belonging to an Individual, Joint, Co-Signer, etc. ECOA codes vary from credit bureau to credit bureau. The below table outlines the various codes and meanings.

ECOA CODESHere is a partial list of items you should look for on a credit report when looking for coding errors:

• Check the ECOA codes to make sure that the accountability level for the individual is reported accurately.

o If the individual is single, and has accounts coded as J, A, AB, or C, then there might be data reporting that is not theirs.

o If the report shows accounts coding as an X, U, T, or P, then the bureau does not have enough information to determine how exactly to allocate assignment of liability to the individual.

ECOA CODES

• Look for inconsistent data:o If the report has multiple accounts that

report to separate lines per bureau versus on one line with all three bureaus then there is a higher chance of errors on the report.

o If the report has lots of missing information in the fields in the accounts on the report carries a higher likelihood of coding errors.

o Look for excessive duplicate accounts on the report, presence of such typically points to coding errors.

ECOA CODES

• Check the Type of Account coding; which will usually be a O, R, I, M, C, or one of those letter followed by a -1, -2, or other -# combination.

• Check the Type of Account coding; which will usually be a O, R, I, M, C, or one of those letter followed by a -1, -2, or other -# combination.

o Make sure the HELOC or 2nd mortgage is not reporting as a R or R-# account, or C or C-#. If it does then the lender is reporting the HELOC as a R (Revolving but usually specifically a credit card) account or C (Check Credit which means personal line of credit) versus an M (Mortgage) account.

o Make sure other installment loans like automobiles, furniture, or recreational equipment is not coding as an R or R-# account. These should report as an I or I-# (Installment) account.

o Make sure installment and revolving accounts are not listed as O or O-#, or C or C-# accounts.

ECOA CODES

o M and I accounts are best for developing good credit, whereas R and C accounts are good if they carry no or low revolving balances (low %).

o Look for accounts listed as revolving that should be listed as installment when they are financed things like furniture or electronics. Many times a lender will offer no interest for a specified amount of time as if the account was going to be an installment, but will then list the account as a revolving account with a credit limit high enough to cover the total cost of the goods purchased. It is possible to have the lender change the account to an installment loan. Otherwise, there is a revolving account with a close to maxed out balance.

ECOA CODES

o Missing or inaccurate credit card limits are one of the most common types of errors found on credit reports. Always look for missing limits, and to get an indication of an inaccurate limit, look for a high revolving amount that is greater than the limit reported. So if a revolving account has a 8k balance, a 14k high revolving amount, but only a 9k limit reporting, it's likely that the limit is really at least 14k but probably a little higher. Some of the more habitual abusers of missing limits are Capital One, Amex, Citi, and Chase (in that order).

ECOA CODES

o On lots of reports the R, C, O, I, M, or C code is followed by a -#. If the -# is any # other than 1, but the account is in good standing, then the coding error is reporting a late, delinquent, or unknown status.

o Also look for contradictory data within a specific account. If an account doesn't list any late payments, the -# code is 1 meaning it is current, but the status is listed as unknown, then a coding error likely exists.

YOUR RIGHTS UNDER THEFAIR CREDIT REPORTING ACT

The federal Fair Credit Reporting Act (FCRA) is designed to promote accuracy, fairness, and privacy of information in the files of every "consumer reporting agency" (CRA). Most CRAs are credit bureaus that gather and sell information about you-such as if you pay your bills on time or have filed bankruptcy-to creditors, employers, landlords, and other businesses. While TransUnion Interactive, Inc. is not a CRA, our parent company TransUnion, LLC is a CRA. You can find the complete text of the FCRA, 15 U.S.C. 1681-1681u, at the Federal Trade Commission's web site. The FCRA gives you specific rights, as outlined below. You may have additional rights under state law. You may contact a state or local consumer protection agency or a state attorney general to learn those rights.


You must be told if information in your file has been used against you.Anyone who uses information from a CRA to take action against you-such as denying an application for credit, insurance or employment-must tell you, and give you the name, address, and phone number of the CRA that provided the consumer report.


You can find out what is in your file.

At your request, a CRA must give you the information in your file, and a list of everyone who has requested it recently. There is no charge for the report if a person has taken action against you because of information supplied by the CRA, if you request the report within 60 days of receiving notice of the action.

You also are entitled to one free report every twelve months if you certify that (1) you are unemployed and plan to seek employment within 60 days, (2) you are on welfare, (3) your report is inaccurate due to fraud, or (4) you reside in Colorado, Georgia, Maryland, Massachusetts, New Jersey or

Vermont.

Otherwise, a CRA may charge you up to nine dollars.


You can dispute inaccurate information with the CRA.

If you tell a CRA that your file contains inaccurate information, the CRA must investigate the items (usually within 30 days) by presenting to its information source all relevant evidence you submit, unless your dispute is frivolous. The source must review your evidence and report its finding to the CRA. (The source also must advise national CRAs-to which it has provided data-of any error.) The CRA must give you a written report of the investigation, and a copy of your report if the investigation results in any change. If the CRA's investigation does not resolve the dispute, you may add a brief statement to your file. The CRA must normally include a summary of your statement in future reports. If an item is deleted or a dispute statement is filed, you may ask that anyone who has recently received your report may be notified of the change.


Inaccurate information must be corrected or deleted.

A CRA must remove or correct inaccurate or unverified information from its files, usually within 30 days after you dispute it. However, the CRA is not required to remove accurate data from your file unless it is outdated (as described below) or cannot be verified. If your dispute results in any change to your report, the CRA cannot reinsert into your file a disputed item unless the information source verifies its accuracy and completeness. In addition, the CRA must give you a written notice telling you it has reinserted the item. The notice must include the name, address and phone number of the information source.


You can dispute inaccurate items with the source of the information.If you tell anyone-such as a creditor who reports to a CRA-that you dispute an item, they may not then report the information to a CRA without including a notice of your dispute. In addition, once you've notified the source of the error in writing, it may not continue to report the information if it is, in fact, an error. Outdated information may not be reported.In most cases, a CRA may not report negative information that is more than seven years old; ten years for bankruptcies.


Access to your file is limited.

A CRA may provide information about you only to people with a need recognized by the FCRA-usually to consider an application with a creditor, insurer, employer, landlord, or other business. Your consent is required for reports that are provided to employers, or reports that contain medical information.

A CRA may not give out information about you to your employer, or prospective employer, without your written consent. A CRA may not report medical information about you to creditors, insurers, or employers without your permission.


You may choose to exclude your name from CRA lists for unsolicited credit and insurance offers.

Creditors and insurers may use file information as the basis for sending you unsolicited offers of credit or insurance. Such offers must include a toll-free phone number for you to call if you want your name and address removed from future lists. If you call, you must be kept off the lists for two years. If you request, complete, and return the CRA form provided for this purpose, you must be taken off the lists indefinitely.

You may seek damages from violators of the FCRA.

If a CRA, a user or (in some cases) a provider of CRA data, violates the FCRA, you may sue them in state or federal court.

BUSINESS CREDIT SECTION

Education

As an Underwriter does their due diligence in determining your credit worthiness, they will also rely heavily on what’s being reported to your businesses credit reports. Business credit scores predict the likelihood of a late payment and lenders review them for one reason, to determine the likelihood of the business going delinquent. Much like a consumer credit report, a business credit score uses credit history to calculate a number indicating a company’s risk. Underwriters look closely at your business credit reports for numerous reason, one reason is to find debt that may not be reporting or listed on your personal credit report. There are 3 major business credit agencies that lending institutions typically use in their underwriting process; Dun & Bradstreet, Experian Business and Equifax Business. Below is a breakdown of each agency and their specific grading criteria.


Dun & Bradstreet (D&B):

D&B is the primary known source for business credit and they use a scoring system called Paydex. According to D&B, the Paydex score is "Dun & Bradstreet’s unique dollar-weighted numerical indicator of how a firm paid its bills over the past year, based on trade experiences reported to Dun & Bradstreet by various vendors".


The D&B Paydex Score is on a sliding scale of 1-100. Below are 2 examples of Dun & Bradstreet’s recommendation of how a lender should interpret your Paydex Score.


The Interpretation Table reflects a score of 90-100 as being excellent and that you make your payment when they are due; 89-80 as being favorable and that you make your payments on time; and being 70 or below reflects poor and you go beyond your agreed upon term in making your payments. Having a score above 80 indicates to the lenders that you pay your bills before they are due. In order to obtain a score higher than 80 you must pay your bill before the tentative due date. In our evaluation, lenders and suppliers today want to see a Paydex Score above 70.

D&B also uses a Financial Stress Score that was designed to predict a business’s potential for failure. The Financial Stress Score ranges from 1 being "low risk" to 5 being "high risk".


Experian Business:

Experian Business uses a scoring model called Intelliscore. Much like D&B’s Paydex Score, Experian’s Intelliscore model is designed to predict payment delinquencies in excess of 90 days for businesses of all sizes and industries.

The Intelliscore model ranges from 0-100.

The Table shows breaks down the Risk Rating for each category.


Equifax Business:

Equifax uses a rating system meant for suppliers; these reports are designed for companies that provide goods and services. They are available for members of the Equifax Small Business Enterprise exchange.

The rating system for Suppliers predicts the probability of a new or existing small business becoming delinquent on supplier accounts or bankrupt within a 12 month period. The score returns a number between 101-816; a high score indicates a low risk for delinquencies. The following table and explanation from Equifax, explain the risk factors of your company based upon the score provided.

PERFORMANCE PROJECTION TABLEEQUIFAX SMALL BUSINESS CREDIT RISK SCORE™ FOR SUPPLIERS


In our ongoing research we have been able to identify certain factors that have either a negative or positive effect on your business credit. We recommend using the list below as a reference point. Review the list prior to the submission of an application to make sure that all positive and negative items are taken care of.


Having an established business credit profile will dramatically increase your chances of being approved when applying for Direct Business Lending. A well established business credit profile consists of 4+ vendors, 2+ revolving accounts. Building strong business credit requires these account types to properly showcase your business’s ability to properly handle your finances. To Determine the Business SIChttp://www.osha.gov/pls/imis/sic_manual.html

The NAICS codeshttp://www.census.gov/epcd/naics07/index.html

After you have identified an accurate SIC code, follow the instructions given above to make changes to each business credit bureau.

http://www.osha.gov/pls/imis/sic_manual.html

http://www.osha.gov/pls/imis/sic_manual.html

http://www.census.gov/epcd/naics07/index.html

http://www.census.gov/epcd/naics07/index.html


Business Profile

In the last 2 sections we have provided a detailed analysis of your personal credit and business credit. Your personal and business credit reports are very import aspects that a Underwriter will review when determining your business credit worthiness. In this last section, we will outline the miscellaneous areas Underwrites use to scrutinize your file.

BUSINESS STRUCTURE

Education Being well educated on your type of business entity is very important. Lenders want to feel confident that you are educated in business and one of those way it to well informed of how your corporation is established.

ASSETS AND LIABILITIES

Education Having a positive net worth is viewed as very favorable in the Underwriters eyes. It’s been our experience, that lending institutions typically want to see an average balance above $10,000 in the business bank account. Typically $10,000 or higher will show the lender that your business has the ability to make timely payments of the loan.

SECRETARY OF STATEEducation

Your secretary of state paperwork always needs to be updated. Reviewing the company’s secretary of State listing is very important in the underwriting process. An Underwriter wants to know that you business is correctly established and that you business paper work is updated. Having incorrect information on your Secretary of State will drastically reduce your chances of being approved for Direct Business Lending.

ADDRESS VERIFICATION

EducationA very important audit in the Underwriting process is the verification of the company’s address. An Underwriter will use local yellow pages, white pages, 411 and few other online verification processes in their audit. An Underwriter will use this audit for numerous reasons. One important reason is to verify that you have an actual business address, preferably disassociated with your current residence address.

PHONE & VOICEMAIL VERIFICATION

EducationA very important audit in the Underwriting process is the verification of the company’s phone and voicemail. An Underwriter wants to feel confident in lending your business the money and if they call the so-called business phone number, they expect the phone to be answered with the business name in the introduction. Lenders also want to see that you have a separate business line and that your home number and/or cell phone number is not the same. All established businesses have dedicated phone numbers and this how you want to be perceived by the lender.

Remember, we want to eliminate and/or reduce the amount of red flags an Underwriter sees.

WEBSITE & EMAIL VERIFICATION

EducationA very important audit in the Underwriting process is the verification of the company’s website and email. This audit is used by the Underwriter for multiple verification purposes. One of the reasons an Underwriter wants to see a business with a website, is to verify that you understand the current way a consumer researches a business. Are you using the internet to attract new business? Are you using the internet to expand your customer base? Are you trying to attract new business and continue to grow? Is your application conveying the same thing you are broadcasting to everyone over the World Wide Web?

USE OF FUNDS

Education

It’s important to understand the correct and incorrect terms that are typically used when a business goes about making applications. Below are the terms typically used along with how an Underwriter typically interprets the term.

• Debt Consolidationo Viewed Unfavorableo Interpretation: You have got in over your head &

now need the banks help.

• Working Capitalo Favorableo Interpretation: Bridging the gap between your AR.

USE OF FUNDS

• Expansion:o Favorableo Interpretation: Your business is outgrowing its current

operations and need money to grow.

• Business Opportunity:o Unfavorableo Interpretation: You want to use the Lenders money to

start a new project.

BUSINESS PROFILE ANALYSIS

Below is a list of tasks that we recommend correcting, fixing, adjusting and/or making changes in order to better improve your position for optimal funding. We have also included suggestions that we recommend implementing.

Establishing a business website and email:Because you are a member of Direct Business Lending you are able to create a FREE WEBSITE through our Website Builder. Your Website Builder is located in the Members Dashboard. Answering Service(s):There are many online services that provide answering services as options. We recommend researching such companies to determine which company best fits your needs.

C O N TA C T U S I F Y O U N E E D A F E W R E F E R E N C E S

Funding Assessment Report

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