‘No Bank’s Going to Loan You This,’ Dave Ramsey Tells Caller With Zero Assets — ‘You’re Not Bankable’

If you want a loan to buy a business, the first step is building trust with a bank by proving you have the capability to pay the money back.

You can earn that trust by proving your creditworthiness. Banks look at creditworthiness to determine whether your business is a reliable candidate for a loan and on what terms.

It’s a reality check that can make or break a dream, as 27-year-old Atlanta resident Michael recently discovered when he called into financial expert Dave Ramsey‘s show.

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Michael wants to buy his employer’s ice business for $1 million, but Ramsey counseled him that a lender would view loaning him the money as a high-risk proposition.

His existing debt, lack of personal assets and living with his parents are signs that he’s not financially stable, Ramsey told him.

“No bank is going to loan you this,” he said. “You don’t have the assets; you don’t have the income — you’re not bankable.”

To be bankable means a borrower is financially stable enough to qualify for traditional bank financing, like a loan or a line of credit. It signals a level of maturity and trustworthiness.

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Ramsey’s assessment cuts to the heart of what banks look for when making loans — the five Cs of credit. If Michael wants to buy a business, he must ensure he improves in these areas:

• Character: When applying for credit, lenders assess your credit history — your track record of managing debt. The history is in your credit report, which includes details about your payment history, how much you’ve borrowed and negative information like late payments or bankruptcies. A consistent history of sound financial management is a sign of character.
• Capacity: Capacity is a measure of your ability to repay a loan, which lenders determine by comparing your monthly debt payments to your income. This is your debt-to-income (DTI) ratio. A lower DTI ratio illustrates that you have more income relative to your debt, which can make you a less risky borrower.
• Capital: Capital refers to the assets you can use toward a loan, such as savings, investments or a down payment. Offering more capital, like a larger downpayment, shows a lender your commitment and ability to repay the loan. This can result in a better interest rate and more favorable terms.

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• Collateral: Collateral is an asset you use to secure a loan. If you can’t make your payments, the lender has the right to take the collateral. This reduces risk for the lender, making it easier to get approved, especially if your credit history isn’t strong.
• Conditions: Conditions are factors lenders consider when deciding on credit approval and terms. They include how you plan to use the money — some lenders prefer making a loan for a specific purpose over a general personal loan. They can also look at factors outside your control, such as the economy and industry trends, to evaluate their risk.

Aspiring entrepreneurs should heed Ramsey’s advice to Michael: Before taking on the demands of a business, you must build a solid financial foundation.

The path to being bankable is a long-term strategy of financial discipline that prioritizes debt repayment, emergency savings and asset accumulation.

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