Although we (and all our customers) wish 100% of the loans submitted for coaching services would be approved, the reality is that not all of them are. (As a side note, we do have a 100% approval program available to coaches who qualify.)
The reasons why a loan may not be approved by one of our lending partners varies, as many have their own algorithms and factors that go into making a decision.
When your customer applies for a loan via your Coach Financing link, their credit score is a critical factor that lenders consider to determine whether or not to approve them for a loan.
However, credit score alone is not a determining factor.
Let’s say that you have two potential clients ready to enroll into your $10,000 coaching program and both of them don’t have any funds to put down at the moment, and they both want to finance $10,000.
Prospect A has a 660 credit score and Prospect B has a 795 credit score. Based on this alone, who do you think would get approved for financing?
Those who understand the credit game a little will know that there’s not enough information to determine the answer. In fact, there are several other factors that lenders consider.
So what if we told you Prospect A has a great debt-to-income ratio and Prospect B is currently unemployed with no income?
In this case (because several of our lenders will lend to those with a 630 and above credit score), the answer would be Prospect A because they have both income and a good debt-to-income ratio. Prospect B would have a tough time obtaining a loan anywhere without a source of income, regardless how perfect their credit is.
Typically, financing companies offer pre-approvals using a soft credit pull, which doesn’t impact credit. This is automated based on someone’s social security number and data they entered (i.e. income, social, etc.)
Once the customer selects an offer for financing your coaching services, it is at that time there’s a hard pull on their credit report. This is to verify all of the information they entered, such as income, address, etc. prior to the lender releasing the funds. This prevents fraud and offers a layer of protection for financing companies.
Other Factors Financing Companies Look At When Determining Credit Worthiness.
Let’s take a look at some of the ways our financing partners look at your prospective client’s credit when it comes down to making a decision on their loan approval.
- Credit Score and Credit History: A credit score is a numerical representation of someone’s creditworthiness, and it is calculated based on their credit history. Your credit history includes information about your payment history, the amount of debt you owe, the types of credit you have, and the length of your credit history. Finance companies will use this information to determine whether or not you are likely to repay the loan.
- Payment History: A payment history is a record of how you have managed your debts in the past. It shows how often you make on-time payments, how frequently you miss payments, and whether or not you have ever defaulted on a loan. A finance company will review your payment history to determine your level of financial responsibility and the likelihood of you making payments on time in the future.
- Debt-to-Income Ratio: Your debt-to-income ratio is the percentage of your monthly income that goes towards paying off debts. Lenders use this ratio to determine how much debt you can afford to take on. Typically, a debt-to-income ratio of 36% or less is considered favorable by lenders. This debt part of the ratio will generally also include the estimated repayment for the new loan. Lenders have an obligation to the public not to put their customers into financial jeopardy.
- Employment and Income: Your employment (and/or self-employment) and income play a critical role in determining your ability to repay a loan. A finance company will sometimes require proof of income, such as pay stubs or tax returns, to verify that you have a steady income source to make loan payments. Lenders may also consider your employment history to assess the stability of your income.
- Collateral: Collateral is a form of security that some borrowers offer to lenders in exchange for a loan. Collateral can include assets such as a home, car, or other property that can be seized by the lender if the borrower fails to repay the loan. Collateral can make it easier to get approved for a loan, as it reduces the risk for the lender. (Important Note: This is not the case for Coach Financing lenders and partners. Our lenders do not ask for collateral.) Our loans are unsecured lines of credit.
- Loan Purpose: The purpose of the loan can also affect the likelihood of approval. For instance, if the loan is being used for business purposes, then the finance company may review the creditworthiness of the business as well as the borrower.
- Industry and Business Performance: Finance companies may also consider the industry and business performance when reviewing a loan application. They will want to ensure that the business is profitable and has a good reputation in its industry.
- Personal Background and Reputation: The personal background and reputation of the borrower can also be taken into consideration. This can include things like criminal history, lawsuits, and bankruptcies. As an important note, there is a saying that says, “Your reputation follows you everywhere.” And this is even true in the financing space or even the ability to offer financing to your customers. We had a coach a couple of years ago get denied the ability to enroll into Coach Financing because the lenders saw the online reviews for the coach and even watched one of their webinars and determined that they were too high-risk to do business with. Just a side note that your online reviews really do matter, not just for social proof, but other businesses you’re looking to do business with may look at them.
- Loan Amount and Terms: The loan amount and terms can also affect the likelihood of approval. A finance company may be more likely to approve a loan with a lower principal amount and shorter repayment terms, as it represents less risk for the lender.
Other Factors Financing Companies Look At When Determining Credit Worthiness.
Keep in mind that finance companies use a variety of factors to determine whether or not to approve a loan application for your high-ticket coaching or course. The above are just a few examples of the factors that they look into. Some may use more, some may use less.
Ultimately, you don’t have control over approvals, just as we don’t. Our financing partners who lend the money are the ultimate decision-makers. Also keep in mind that it all comes down to being a numbers game. And it really depends on the type of coaching you offer and market(s) you target.
For example, a coach who coaches established Doctors on how to grow their practice faster for $20,000 and a coach who offers marketing coaching to small businesses and entrepreneurs for $20,000 will most likely have different approval odds.
Want To Enroll More Clients Into Your Coaching Business?
Here’s a little tip: When offering financing to your prospects, we recommend asking for a deposit for your services. (The higher the better, we’ll explain why in a moment.) This will do two things.
First, it shows a commitment from your customer that they are really invested in your services. We could compare this to the real estate market. Banks generally prefer a 20% deposit when you buy a house, which also provides lower rates for financing. Financiers colloquially refer to this as “hurt money”, or money that the borrower stands to lose if they stop paying the mortgage.
Second, it will lower the amount of required financing resulting in a lower debt-to-income ratio which might just be enough to get the loan approved for those with challenged credit.
Ready To Grow Your Coaching Business in 2023?
After launching Coach Financing at the start of the pandemic (talk about great timing to launch a financial services company), we have been experiencing massive growth, which simply means our coaching customers have been growing just as fast.
In fact, from Q2 2020 through 2022, we have financed over $150 million dollars in coaching programs, courses, and consulting services.
If you offer coaching, a course, or consulting programs for at least $1,000, and you want to offer your clients an alternative to paying upfront for your services, consider enrolling into Coach Financing. Well over 1,000 other coaches use us to enroll more clients, generate more revenue, and reduce their costs of acquisition.