Building Your Business' Credit Rating

Important 5Cs Steps in Developing and Building Business Lines of Credit:

Working with many small business for over 25 years we have experience with many business who should develop lines of credit before it is needed.

1. Capacity of Business to Support Debt and Expenses:

Lenders need to be able to see if you have the capacity to support all monthly expenses and have enough cushion (cash flow) to absorb unexpected additional cost.

2. Capital & Cash Flow:

Does your Assets and “Real Cash Flow” outweigh your liabilities and cost monthly (along with year to date), and how much reserve is on hand to cover a possible surprise expense.

3. Collateral:

Does your cash + accounts receivable, inventory, equipment and commercial real estate equal required funds to keep your business running during a tight month, or short extended period.

4. Economic Conditions:

Lenders do look at current factors in the economy, industry trends and possible tax charges that might affect your ability to make loan and set up reasonable payments.

5. Character:

Personal Integrity, Industry Experience, Credit history (of both business and personal) would be closely tied to the overall success of the business and loan abilities and are critically important factors (which are considered).

Credit/Loan 5-3-2 Rule (3 Important Guidelines and needed requirements):

A. 5 Active Trade Credit Accounts:

Most lenders will demand to see 5 active credit accounts used by the business (this is usually business vendors who you pay monthly that they can call and confirm an ongoing relationship). This can include UPS, FedEx, Staples, Home Depot, or Dell (or similar).

B. 3 Business Credit Cards:

These are credit cards under the business name only.

C. 2 Credit Accounts:

Needed 2 credit accounts (vendors with credit line/s or terms) that have been previous paid in full.

Advantages of Business Line of Credit:

1. Access to Cash when you need it (most times you can write a check on the day it is needed).

2. Flexibility to get needed funds anytime and not pay interest until you need to.

3. Funds for Emergencies (than bad cash flow month) or Rush Projects or Limited Special Terms Discounts.

4. Improve Cash (to keep operations running smoothly if you are growing your business).

5. Lower Interest Rates than current credit cards (often ½ of current rates with good credit).

6. Ready Cash for Mid to Large Purchases (sometime too big for credit cards and too small for loans). Small business lending has improved 20% in the last year (according to the “Banking in Small Business”).

47% of small business with great credit have credit lines (source: Bank of America).

Building Lines of Credit “before it is needed is Always Easier”!