If you re a small business owner applying for a loan or other credit, it pays to understand what lenders are looking for. From the point of view of the small entrepreneur the decisions that banks and other credit institutions make can often seem random. In fact, they are anything but.
It s crucial to understand that lenders are not necessarily risk-averse. Providing credit has a built-in element of risk. By offering you credit they are, in effect, making a bet on the success of your business. Like all professional gamblers, lenders like to get as much information about their bets as they can, in order to manage and limit risk.
So when they assess your business s suitability for a loan, they will look at the so-called three C s : credit history, collateral and character.
Credit History
Everyone is familiar with the idea of having their credit history examined when they apply for a loan. Every adult has a credit history and a credit rating based on that history. This information is shared among major lenders.
Clearly companies, like people, also have credit histories. The ratings based on these are sometimes called institutional credit ratings. When you request business credit the prospective lender will check your company s institutional rating. There are also circumstances in which lenders may wish to check the personal credit ratings of the business owner and directors – this is common for small businesses, startups, and businesses that have recently changed hands.
Collateral …
Read the rest of: Small Business Loans the 3 C’s here
