The ultimate goal of any Small Business Owner should be to build a business that opens the doors to Traditional Funding Sources.
The Creditworthiness of a Business reflects on so much more than simply the ability for a company to meet its financial obligations and repay a loan as outlined by the written loan agreement.
The Creditworthiness of a business is a critical factor that goes a long way, not only with traditional financial institutions, but also with suppliers, vendors, payment processors, stakeholders, and any other entity who wishes to assess the risk of doing business with your business.
And never forget the public perception, which in the world of social media, can have a great affect on your Business Character.
There are a few common factors that go into evaluating the Creditworthiness of any business, and they boil down to what is referred to as, the ‘5 C’s of Credit’, and it is important that you, as the Business Owner, evaluate your business by taking into account the 5 C’s of Credit, for yourself.
The 5 C’s of Credit are as follows:
Capacity: Does the business have the capacity to pay its current invoices? As a Business Owner, you should take some time to evaluate the cash flow of the business. In other words, is there enough cash flow for the business to cover all of the required financial obligations of the business. The Business Financial Statements will reveal to you the answer.
Capital: What are the assets of the business? The answer should include cash, equipment, inventory, real estate, intellectual property, trademarks, brand names, trade secrets, and anything that can be used to produce value for the business.
Character: This, of course, is a subjective matter, but it determines the honesty, reliability, and trust of a business. The Character of a business is generally evaluated by perception in the public square. In other words, what do people have to say about your business, including your customers, your vendors, and others that may have contact or may be aware of your business. Social Media can have a huge impact on this ‘C’.
Collateral: This is not necessarily what YOU feel is of any value, but rather what the Lender believes has value. Lenders use collateral to secure a loan, and the pledged collateral has to have value in the open market, and has to have the ability to convert to cash fairly quickly in the event the loan goes into default.
Conditions: The CATEGORY OF BUSINESS that your business falls under affects the creditworthiness of the business and takes into consideration market trends, industry trends, market conditions, the stability of the industry, competitors, market demand for your product or service, among other outside forces that may cause an increase or decrease in production and revenue of your type of business.
You have to know, that as a Small Business Owner, you have total control when it comes to establishing strong business relationships with your vendors, your suppliers, your customers, and your local community, and by staying proactive, you have the ability to generate goodwill within your business, and by doing so, you can go a very long way in developing and supporting the Creditworthiness of your business.
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