The 5 Most Important Words Your Business Credit Will Ever Know

The 5 Most Important Words Your Business Credit Will Ever Know


Companies rely on business credit, whether they are a corporation or a mom-and-pop shop. Business credit gives owners the operating cash they need for numerous reasons, and one of those reasons is to expand the entity at the ideal time and increase profitability. Much like personal credit, however, you cannot just get business credit. You must prove your worthiness for financing prior to approval, and lenders gauge you using the five Cs of business funding. Here is what they are.

The 5 Most Important Words Your Business Credit Will Ever Know


1. Character


Character is also known as your credit history, and if you’re just starting out, your personal credit history will also be taken into account. When you apply for business financing, your business and possibly personal credit report will be run through the three credit bureaus, and your scores will directly affect your ability to receive the funding you need. You must have a high score in order to be approved for business financing, so make certain you keep your records clean, even your personal ones.


2. Capacity


As well as looking at your overall credit scores, a lender will also look at you and your business’ ability to repay the financing. You must have a strong debt-to-income ratio, meaning your business brings in more money than it puts out. This is also true for your personal financing, but rather than gauging how long you’ve been at your job, for example, a business lender will look at how long you have been in business and your profit history. If it isn’t strong, you might not be approved.


3. Capital


Part of what makes your business look strong is your capital. How much money do you have on the books? What are your business assets? How much have you put down for your business purchases? For example, a business owner who put down 50 percent for a commercial mortgage loan is much stronger than a business owner who only put down the minimum. What do your capital assets say about you, and how will they show a lender that you have the chops to make good on your financial obligation.


4. Collateral


Capital and collateral are a lot alike. Collateral is the business assets you have to back up your lending. Think about your personal loans for just a moment. You have a mortgage on your home and your home is the collateral backing up your loan. If you default on your mortgage payments, the financer will take your home into its possession. The same with your automobile loan. You must show that you have business assets to back up your business funding. Equipment, for example, could be considered an asset.


5. Conditions


Accounting students learn about a thing called conditions, and you can learn more about UAB’s online accounting degree program if you’d like to give yourself the upper hand at handling your business finances. The conditions of your business financing include the amount of the principal – the money lent – interest rates, the duration of the loan, and your monthly payments. You must take all of these into account prior to taking out a loan to ensure you can pay it back. The financer will take all of these into account as well when reviewing your application and supporting documentation to ensure you can pay back the loan under its specific conditions.


These are the five Cs of business financing, and the more you understand them the better equipped you will be to apply for and, more importantly, pay off a business loan. Establishing business credit worthiness will help you grow your venture. You will have access to operating capital for emergencies, for expansion, and for your busy season. Make the most of your business financing by learning all you can about the five Cs.

The 5 Most Important Words Your Business Credit Will Ever Know
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