5 Factors Lenders Use to Extend Business Credit

Services for Real Estate Pros with The Business Credit Insiders Circle

Business Credit

During the early stages of starting and operating a business, many entrepreneurs use their personal credit cards to finance purchases, equipment, and even payments to suppliers or vendors. Statistics show that over 65% off all small businesses use credit cards on a regular basis; but the problem is less than half of those credit cards are actually in the business name. The others continue to use the owner's personal credit cards for business transactions.

So what is business credit?

Definition - Business Credit is the ability to obtain financing under the name of the business entity. Business Credit should be separate from personal credit and should be based on the corporation's credit worthiness.

Every business at one point will require an influx of cash in order to cover operating expenses, development, expansion, legal fees, inventory or a range of other items the business may require in order to grow. Adopting a ‘cash only' strategy is a good plan but should never be the only plan.

Should ‘Cash Only' be the strategy for your business?

Lending institutions want to lend money because it's the way they make money. However, they only want to lend money to a borrower who is able to repay the loan on time and in full.

When lending small amounts of money under $50,000 typically the qualification depends solely on personal and business credit scores. Depending on the personal and business credit scores, they either will or will not approve the loan.

When deciding to extend credit to a business lenders use the ‘Five Factors of Business Credit':






It's my goal to empower as many entrepreneurs as possible with this knowledge. The better you can understand what lenders look for the greater you can improve your ability to obtain financing.

Each of these areas helps the lender to determine the overall risk of the loan. While each of the C's is reviewed, none of them on their own will prevent or guarantee access to financing. There are really no automatic formulas or guaranteed percentages that are used with the Five C's. They are only a variety of factors lenders use to evaluate and decide how much of a risk the potential borrower is.

Let's cover these 5 Factors in greater detail.

Capacity - This is an evaluation of your ability to repay the loan. Capacity is evaluated by several components including cash flow, payment history, and additional cash sources. The best way to show your capacity is with a strong business credit profile, a strong bank rating, a well designed business plan and/or prior year(s) financials that show you can produce enough cash to repay the loan.

CLICK HERE for a free business plan course 

Capital - Typically, a company's owner must have his own funds invested and at risk in the company before a financial institution will be willing to risk their own investment. How much skin you have in the game is very important and can make the difference between an approval or denial.

Collateral - Heavy machinery, stocks and bonds, and other expensive business assets that can be sold if a borrower fails to repay the loan are considered collateral.

Conditions- Be prepared to prove that the conditions are right for your business. Make sure there's a market, an industry, positioning, competitiveness, and experience to back up your plan.

Character -Lenders have to believe that a business owner is a reliable individual who can be depended on to repay the loan. Some areas they look into include personal credit history, education, and work experience.

When applying for a small business loan, don't forget the importance of personal relationships. Apply for a loan at a bank where you already have a positive business relationship. Also, make an attempt to meet with the person who will be evaluating your application, such as a bank's lending officer, rather than the teller who handles your day-to-day banking transactions.

Remember - To succeed in business, to reach the top, an individual must know all it is possible to know about that business. ~ J. Paul Getty

Make it a great day!


National Entrepreneur Club

Marco Carbajo is a business credit and social media marketing coach. His blogs and articles are featured in Alltop, Scotsman Guide, and Entrepreneur Connect. He is the founder of the National Entrepreneur Club, an online membership community that helps entrepreneurs obtain the cash credit and financing their businesses need and increase profits with social media marketing. You can follow him at http://ow.ly/2kkn

Copyrighted and published by Marco Carbajo of UCan2, Inc.

All rights reserved.


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