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A guide for small business owners

Kimberly Chan As a small business owner, you know that access to funding is the fuel for growth. But when you approach a financial institution, it can feel like you're trying to solve a puzzle. What do they really look for? The answer can be the difference between straightforward approval and a frustrating, lengthy process with no guarantee of success. Many viable small and medium enterprises (SMEs) are denied credit not because their business is weak, but because they don't present their strengths in a way that financial institutions expect or require. This guide will help to demystify the credit assessment process. We'll break down what banks and rating agencies need to see, highlight the common red flags that impact applications and provide clear, actionable steps to turn your business into a candidate for credit or a credit rating. [caption id="attachment_1175938" align="alignnone" width="818"] Kimberly Chan, head of human resources business partnerships, CariCRIS. -[/caption] The pillars of a creditworthy business Whether you're seeking a loan from a financial institution or a formal credit rating, the assessment boils down to some fundamental areas. Strength in these areas shows that your business is reliable, professional and built to last. 1. Solid and verifiable financials Verifiable financial data is the bedrock of any credit assessment. This isn't just about showing a profit; it's about proving your numbers are real and professionally managed. · Verified cash flow: Lenders and credit analysts want to see consistent money flowing through your business bank accounts. This is essential, as it validates the income and expenses you report in the absence of audited financials. · Professional financial statements: Formal profit and loss statements, balance sheets and cash flow statements are crucial. Ideally, these are prepared by a certified accountant. While a full audit isn't always necessary for SMEs, your internal accounts must be supported by verifiable data like bank statements, contracts, etc. · Good payment history: Your track record of paying suppliers, bills and other creditors on time is a powerful indicator of your reliability and management competence. 2. Professional operations and governance How your business is structured and run says a lot about its stability. A professionally managed company is seen as having a lower risk. · Separate finances: A clear separation between your personal and business bank accounts is fundamental. Mingling funds is a major red flag that suggests poor financial discipline. · Documented processes: Written policies for key operations – from inventory management to customer service – show that your business can function consistently. · Clear governance: While a formal independent board of directors is not always possible for small businesses, you need a structure for accountability. This could be an advisory committee or regular consultations with a business mentor or advisor. These arrangements show that decisions aren't made in a vacuum. [caption id="attachment_1175940" align="alignnone" width="1024"] -[/caption] 3. Future viability and resilience Lenders and rating agencies are not just interested in your business today, they are also looking at its future. You must show that your business is built to withstand challenges. · Succession planning: What happens if you, the owner/operator, are suddenly unable to work? A documented succession plan or a cross-trained management team significantly reduces this "key person risk." · Strong market position: Clearly articulate your competitive advantage, the stability of your customer base and your deep industry knowledge. Why will customers continue to choose you? · Risk management: Demonstrate that you have thought about potential problems. This includes having adequate insurance coverage, a diversified customer base (so you aren't reliant on one or two clients), and a basic contingency plan. The red flags that kill SME credit applications Most rejections for SME credit stem from a handful of recurring and fixable issues. Avoid these common pitfalls. 1. The "invisible cash" problem. Many businesses deal in cash, but if that income never touches a bank account, it's invisible to an analyst. · The fix: Deposit all business revenue into your business bank account. Keep meticulous records of cash transactions and ensure your accountant reflects them accurately in your financial statements. 2. The "shoebox" accounting. Keeping receipts in a box and preparing financials only to minimise taxes gives an incomplete and often misleading picture of your business’ health. · The fix: Use professional bookkeeping software as much as possible. Invest in a qualified accountant to prepare comprehensive financial statements that accurately represent your performance, not just your tax liability. 3. The blurry line between personal and business. Using your business account for personal expenses (or vice versa) makes it impossible to analyse your company's true financial performance. · The fix: Establish a separate legal entity for your business (eg a limited liability company). Maintain completely separate bank accounts and credit cards. Pay yourself a formal salary instead of dipping into the company cash flow. 4. The "indispensable owner" trap. If the business cannot function without you for a single day, it carries an enormous amount of "key person risk." · The fix: Document your critical processes. Cross-train key employees in essential functions. Create a simple, written succession plan and consider "key person insurance." 5. The "it's all in my head" operation. Relying on handshakes and informal agreements creates uncertainty. Lenders and analysts cannot assess risks they cannot see. · The fix: Formalise key relationships. Use written contracts with major clients and suppliers. Have documented employment agreements and clear operational procedures. The bottom line: From unseen risk to clear opportunity Securing credit isn't about having a "perfect" business. It's about demonstrating your strengths clearly and showing that you manage your risks transparently. By focusing on professional operations, maintaining good financial records and formalising your processes, you do more than just improve your chances of getting a loan. You build a stronger, more resilient business that is ready to seize opportunities and weather any storm. When you make your business easy to understand, you transform it from a perceived risk into an obvious opportunity for investment and partnership. While financial institutions and credit rating agencies assess financial health, a formal credit rating acts as a powerful, supplementary tool, highlighting many other relevant creditworthiness factors. Financial institutions will always conduct their own internal due diligence for their specific credit facilities, but an independent credit rating provides a standardised benchmark that can strengthen that application. This formal rating supports requests for traditional banking facilities and paves the way for future access to capital market facilities such as commercial paper, bonds and structured financing facilities. At CariCRIS, our dedicated SME grading service is designed to give SMEs a clear sense of where their business stands. It provides an independent assessment that highlights strengths and identifies the specific areas that can be improved, allowing SMEs to proactively enhance their credit profile.   The post A guide for small business owners appeared first on Trinidad and Tobago Newsday.