Understanding the 5 Cs of Credit

Understanding the 5 Cs of Credit

When it comes to establishing a business line of credit – there vital indicators that lending institutions such as banks look into when determining the viability of your business loan. Given It’s important to understand the 5 Cs of small business finance.

The 5 Cs for establishing good business credit

1. Cash Flow – your business will have to demonstrate that it will be able to maintain a healthy cash flow and make its loan repayments. The lending institution considers your current and projected cash flow forecast as well as a number of other indicators to determine your business’s credit worthiness.

2. Collateral – types of applicable collateral that can help your business secure a loan include equipment, inventory, accounts receivable and real estate. Certain types of equipment finance involve a business leasing the equipment from the lender who owns the title.

3. Capital – business owners should have a certain amount of their own personal equity invested. This demonstrates confidence and gives banks the assurance that you’ll see the operation through a financial difficulty.

4. Conditions – lending institutions examine the conditions of the current industry, competitors, customer relationships and any supply risks that are associated with your venture.

5. Character – a business owner’s individual is also considered. A lender will look into the past ventures of a business owner or the director of a company.

For many businesses without an established business line of credit, alternative finance may be more practical and easier to secure. No matter your vertical, print, IT, veterinary or medical – equipment finance is available to help.

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