Bankruptcy Is Not the Only Answer
Bankruptcy Is Not the Only Answer
Bankruptcy Is Not the Only Answer
In order to determine if you will be able to establish, build and maintain true corporate business credit for your new or existing company, very carefully consider each of the following C's to see how you would look to a potential lender looking at things from the lender's point of view. Here are the five C's of building corporate business credit:
Capacity -- This is an evaluation of your ability to repay the loan. The financial institution wants to know how you will repay the funds before it will approve your loan. Capacity is evaluated by several components, including the following:
Cash Flow -- Cash Flow refers to the income a business generates versus the expenses that it takes to run the business which is analyzed over a specific time period. For example, if a new or existing company regularly generates ten-thousand dollars a month of revenue, and that company has expenses of eight-thousand dollars a month, the lender would determine that there is two-thousand dollars a month in cash flow that could effectively be used to repay the loan. If a company has the same amount of expenses as income, that would mean the cash flow would be zero and the potential lender would have reason to be concerned about how the company plans to repay the debt from either the loan or the credit line being applied for by that company.
Payment History -- Payment history refers to the timeliness of the payments that have been made by a new or existing company on previous loans granted by that lending institution, or by others to which that company used prior to seeking additional funding. In the past, it was much more difficult for commercial institutions to accurately determine whether a small company or corporation had a good strong business credit report or a good solid payment history. However, today there are companies that specialize specifically in the evaluation of commercial credit ratings (such as Dun & Bradstreet) that are able to provide this kind of history to nearly all commercial and private lenders.
Contingent Sources -- Contingent sources for repayment are additional sources of income that can be used to repay a loan. These could include private trusts, personal assets, savings or checking accounts, and other resources that might be considered usable by your company to help secure a loan or credit line. Ultimately, capacity is the main requirement for lending and corporate business credit. The ability to receive regular payments generated by a company's cash flow is the easiest way a financial institution can be guaranteed to be repaid for lending to you and your company.
Business Capital-- Typically, a company's owner must have his own funds invested and at risk in the company before a financial institution will ever be willing to risk their own investment into your company. Business capital is an owner's personal investment in his or her business which could be lost if the business is a failure. There is no fixed dollar amount or percentage required by the potential lending institution that the owner must be vested in via his or her own company before he or she is eligible for a business loan. However, most lenders want to see at least twenty-five percent of a company's funding coming from the owner before they will step up to the plate.
Business Collateral -- Business colateral simply means heavy machinery, stocks and bonds, and other expensive business assets that can quickly be sold by the lending institution if a borrower fails to repay the loan back as agreed. These company assets are considered to be viewed as business collateral. Since small items such as computers and office furniture are not typically considered to be viewed as business collateral, in the case of most small business loans, the owner's personal assets (such as his home or automobile) are required in order for the loan to be approved by the lending institution or private lending source. When an owner of a small business uses his or her own personal assets as a guarantee on a business loan, that means that the lender can sell those personal items to satisfy any outstanding amount which may be due to them that is not repaid as agreed.
Conditions -- This is an overall evaluation of the conditions or specific terms surrounding the loan including general economic climate at the time the loan is requested and also includes the general purpose for the use of the loan by your business. Economic conditions specific to the industry of the business applying for the loan as well as the overall state of the country's economy also factor heavily into a lending institution's decision to approve a loan for a business. Clearly, if a company is in a thriving industry during a time of solid economic growth, there is more of a chance that the loan will be granted to the business than if the industry is declining and the economy is uncertain. The purpose of the loan is also an important factor in the decision as well. If a company plans to invest the loan into the business by acquiring assets or improving its equity, there is more of a chance of approval than if it plans to use the funds for more risky expenses such as expanding into new markets. Most financial institutions require that the borrowed funds are to be used solely to increase income or decrease business expenses.
Character -- This is a highly subjective evaluation of a business owner's personal history and his or her business history. Lenders have to believe and prove that a business owner is a truthful, stable, reliable and strong individual who can be depended on to repay the loan that they approve for a business. Background characteristics such as personal credit history, education, and work experience are all factors in this business credit analysis. Note: When you are applying for a small business loan or lines of credit, don't forget the importance of personal relationships. Apply for a business loan or line of credit 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. One important thing to remember, most banks today, replace people frequently to avoid favoritism from client to client, so be absolutely certain to maintain a positive relationship with all bank officials that you deal with.
Role & Responsibilities of a Bankruptcy Court Trustee A Timeline of the Process of Filing Chapter 7 Bankruptcy Can You Eliminate Tax Debts by filing for Bankruptcy? How to decide if Chapter 7 Bankruptcy is Right for You? "Here Is The Answer to Your Debt and Bankruptcy Problem" Bankruptcy Strategies Us Importance Of Hiring A Bankruptcy Attorney Can You Modify a Mortgage Following You Filed For Bankruptcy? Bankruptcy Lawyer - How to Find the Best One Bankruptcy greenville sc, bankruptcy attorney, debt settle Can My Bankruptcy Lawyer Protect My Foreign Assets? Will I Be Able to Keep My Tax Refund After Bankruptcy? Is Bankruptcy the Right Choice for You?