Car Rental Q&A: How Can I Improve My Credit Application For Lenders?

Q: I am looking to secure a line of credit to fund purchases for my growing rental fleet. How can I improve the quality of my credit application to lenders in order to optimize my chances of receiving the funding I need to keep growing?

— Kamal Fereg, America's Best Car Rental, Fort Lauderdale, Fla.

A: The reality is that rental operators, at some point, may need financing for their fleet to ensure their operations continue to grow. It is important to understand what lenders look for beyond the standard credit application. Most lenders require a full financial package, which includes business and personal tax returns, personal financial statements and business balance sheets and income statements.

Photo courtesy of iStockphoto.com/ERHU1979
Photo courtesy of iStockphoto.com/ERHU1979

Below are a few key details to keep in mind when submitting a package for consideration to a rental fleet inventory finance lender. Armed with this knowledge, you’ll be better equipped to make sound business decisions that not only strengthen your balance sheet but also enhance your business.

Tips to Keep in Mind

  • Know what you want and ask for it. Lenders look for confident business owners with clear goals and objectives. Communicate your needs and provide supporting documentation. Ensure you have information to support the type and cost per unit of the rental fleet you will carry, as well as utilization/revenue projections.
  • Show your flow. Strong bank balances impress lenders while weak balances depress them. Lenders will look at your daily ledger for any negative balance days throughout the month. While it may be tempting to go out and purchase additional fleet when the checking account starts to swell, don’t do it. Your lender wants to know that you have enough cash to handle a short-term market crisis. Remember, cash flow is king.
  • Highlight your balancing act. If a short-term market crisis becomes long term, a solid balance sheet with a healthy volume of self-owned inventory will look attractive to lenders because it can usually be converted in a reasonable amount of time. This may seem contrary to my prior point about cash balances; however, the key here is balance. Negative equity on a balance sheet does not impress.
  • It’s OK to make a profit. A healthy business is a profitable business. Rental operations that lose money year after year are typically examined more closely and questioned by lenders looking at their application packages.
  • Get your house in order. Lenders will typically request personal financial statements from each person listed on the application for credit. Make sure your personal financial statements are in good order, paying particular attention to your assets. If they are not in order, it will cost valuable time as you go back and forth with the underwriter for clarification.
  • Remember the little things. The entries made to your financial statements need to be supported by additional documentation, e.g., cash in the bank should closely match what is reflected on your bank statements for the same time period.

It may look good to have a large asset number at the bottom of your personal financial statement, but some conservative lenders could strip away assets that are not tangible. Tangible assets have a physical form and include items such as your home and cash. Tangible assets are especially important if your business balance sheet is not as strong as you would like it to be. Your lender will also look to see if your personal obligations are paid in a timely fashion.

Remember, it’s important to make your first impression with lenders a good one. Make sure the financial package you submit is accurate, legible and complete. Lenders will not believe what you cannot substantiate. Additionally, it’s important to have a track record of consistent financial reporting in order to access the best financial options for your rental operation.

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