Working capital means different rules for different businesses. Some companies may need cash to expand their product line or open a second store at a new location, and some may need cash to sustain their business during a recession. Whatever the reason for the need, many lenders first use Six Cs of credit to ensure that the business is trustworthy.
- "Owner ship character
Lenders love character. If you want to get a loan, it is important that you have good qualities. A strong academic record, industry knowledge and good business history will show the lender that you are serious about meeting their loan criteria.
In the order for lenders to contemplate your business loan, they really need to know that you can pay it back. Your current payments on other debts and the amount you owe at any time. To get a business loan, you need to be able to show how you intend to repay it. If you cannot, you may not be accepted; therefore, please identify your funding sources before applying.
Collateral works in the same way as capital works. While capital is more diffluent, collateral is an actual asset held by the company. This includes secured assets such as real estate, vehicles or equipment. If a business has a good credit history, it may be able to get an unsecured loan without any colleteral.
Lenders want to know how the money they provide will be used. If you are building or expanding your business, you are more likely to get a loan. Market conditions also play into this. If the market is strong and your industry is booming, you are at greater risk than being involved in an industry that is currently in recession.
Equity is similar to collateral. Lenders look at the capital you have invested in the business and determine how much capital you are eligible for. If a business owner invests more money in his business, he is more likely to repay the loan. The more money they have in the business, the more likely they are to get a loan.
- Credit score
Credit scores generally do not have the final say on whether or not you will be approved for a business loan. However, they do provide a picture of your credit file, which most lenders rely on to build a good knowledge base about you.
The main purpose of a credit score is to show your every month payment schedule and whether you are always on time or late. The 6C's of credit give lenders the information they need to consider your credit risk level. Making this understand will help you to be better prepared when you first approach a lender for a business loan. When looking for working capital, start by checking your C's and making as many improvements as possible.