How the 5 C"s Can Change Your Credit Future
When it comes to credit, potential lenders all want to see slightly different information about your company's financial past, present, and future.
However, most of these issues can be boiled down into the five C's of credit.
If you can keep these five subjects in order, you'll greatly increase your chance of being successful in your loan application.
Capital What's your current cash flow like? Banks want to make sure that you have enough money coming into your business that you'll actually be able to pay the loan back.
Another important factor in capital is how much money you've personally invested in your business.
After all, if you won't risk your own money on the business, why should the lender? Conditions A lender isn't just looking at how you're doing--he or she is also looking at the current condition of the larger market.
This includes taking into account whether or not you're in a recession-prone industry--and how you handle your business when the economy's own the downtrend.
Capacity How much money is it likely that you'll be able to repay? This C takes into account multiple factors, including your past credit history, repayment history, and just how much debt your company can safely take on.
Collateral In a perfect world, everyone would be able to repay their loan on time, in full, and in cash.
However, since our world is far from perfect, lenders need to look for another way of being repaid, just in case.
Common sources of collateral for businesses include real estate and equipment.
Character One of the most nebulous, yet most important, factors in the lending process is your character.
This can include references from clients, customers, and employees, past history of responsibility, and your general trustworthiness and integrity.
While every lender is different, a solid understanding of the 5 C's will help put you on the right path to lending success!
However, most of these issues can be boiled down into the five C's of credit.
If you can keep these five subjects in order, you'll greatly increase your chance of being successful in your loan application.
Capital What's your current cash flow like? Banks want to make sure that you have enough money coming into your business that you'll actually be able to pay the loan back.
Another important factor in capital is how much money you've personally invested in your business.
After all, if you won't risk your own money on the business, why should the lender? Conditions A lender isn't just looking at how you're doing--he or she is also looking at the current condition of the larger market.
This includes taking into account whether or not you're in a recession-prone industry--and how you handle your business when the economy's own the downtrend.
Capacity How much money is it likely that you'll be able to repay? This C takes into account multiple factors, including your past credit history, repayment history, and just how much debt your company can safely take on.
Collateral In a perfect world, everyone would be able to repay their loan on time, in full, and in cash.
However, since our world is far from perfect, lenders need to look for another way of being repaid, just in case.
Common sources of collateral for businesses include real estate and equipment.
Character One of the most nebulous, yet most important, factors in the lending process is your character.
This can include references from clients, customers, and employees, past history of responsibility, and your general trustworthiness and integrity.
While every lender is different, a solid understanding of the 5 C's will help put you on the right path to lending success!