The 5 Cs Of Business Credit

While many factors come into play when building business credit and the elements that are looked at when looking for business funding, business credit on a macro level can be distilled down to 5 Cs.

1. Character

Character is all about you. It’s about your personal history, your stability, and how reliable you are. This variable is more subjective than the others. It is one of several reasons it is best to do business with a bank where you have built relationships with those working there. The lender may check your education, work history, personal income, and personal credit history. This is one area of business credit where relationships matter!

2. Capital

Capital is about how much you have invested in your business. Whether you are seeking a bank loan or a loan from a private investor, the lender will want to see you are heavily invested in your business. Generally, the more your personal money is invested in your business, the better it looks to potential lenders.

After all, if you’re not confident enough to invest in your business, why should they be?

3. Capacity

Capacity is about your ability to repay a loan per the terms. Cash flow, payment history, and the assets and resources of anyone providing a personal guarantee play a part.

4. Collateral

Collateral is something offered up as security for a loan. Anything from equipment to inventory to a home you own can be collateral. Getting approval for loans with collateral may be easier, and many loans will demand it. In some cases, the more you can offer as collateral, the more likely you will get approval.

5. Conditions

Conditions may mean many things, some of which could be out of your control. The current economy, for instance, may play a role in your ability to get approval for a loan. They may look at your industry, its economic status, and the loan’s purpose.

If your industry is suffering and businesses are struggling, it could harm your ability to get approval. Some loan purposes are easier to get approval for than others, too. Loans for riskier purposes like new and unproven expansions are often less likely to get approval.


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