The BizFilings blog covering business tips and trends.
The Five C's of Good Credit for Financing a Startup
Published on Dec 17, 2010
Read 'The Five C's of Good Credit for Financing a Startup' at 'Time to Start Up,' the small business blog by BizFilings.
Financing is the single most important aspect to starting a company and maintaining it through the early stages of development is equally paramount. No matter how brilliant an idea, product or business model is, no one will know this if its provider is not able to acquire substantial credit for hiring, marketing and growing the company.
Before heading to a bank or private lender, small business owners should consider the "Five C's" of good credit.
"The five C's are very important," John Seelinger, a volunteer for small business advocacy group SCORE, told Inc. magazine. "You can't afford to be sloppy or haphazard with them. The underwriting process may be different, but the fundamental five C's are always there."
"Capacity" refers to a business' or investor's ability to repay a lending debt.
"Character" reminds borrowers that investors need to be certain that they are lending to reputable and trustworthy borrowers.
"Capital" refers to the level of investment an owner has made in his or her own business. A lack of personal financing will likely discourage creditors from offering their own funding.
"Collateral" is perhaps the most important consideration, however. Lenders are far more likely to offer credit to businesses and investors that have offered a line of insurance in case of bankruptcy or poor ROI.
"Conditions" refers to a lender's desire to know how and toward what their financing will be spent.