The first 4 Cs of Credit – character, capacity, capital, and collateral – all deal with a company's financial history or current state of affairs. One would think a clean past and current financial strength would make lenders eager to produce a 504 loan, or any business loan. However, lenders are also concerned with the future, and how the future economic outlook may affect your business.
This brings us to the last C of Credit: Conditions. Conditions refer to the overall economic environment in which a company operates, including markets, consumer trends, economic predictions and environmental considerations. Lenders want to understand how the economy will affect a business, and thus a borrower's ability to repay the loan.
You should be prepared to articulate what you see as the primary threats to your business, and how you plan to protect the company. Lenders should know why you are comfortable with the presence of these risks, so they will be more comfortable too. This is where a well-prepared business plan really comes in handy.
Your business plan should explain the following:
- The competitive landscape of your company – Identify your competitors in the market, and explain how your company is unique and how you compare with your competition. Include any percentages of the market share that your competitors serve, and your current and projected market share. Explain how you will mitigate the risk of your customers switching to your competition.
- The nature of your customer relationships – Identify any significant customer concentrations and how you plan to protect these relationships. Include any plans to diversify your company's revenue base. Explain how your company will mitigate interruptions in revenue streams if a significant customer becomes bankrupt.
- Supply risks – Explain the relationships with your suppliers. Identify any possible supply disruptions and explain how you will mitigate this risk.
- Industry issues – Address how you will comply with any current or future government regulations or requirements involving your business. Explain any political or macro-economic factors that could potentially affect your company. Although the global economic climate is beyond your control, lenders consider how these factors might affect your business. Having a good understanding of your industry and how economic conditions will impact your cash flow is crucial.
Even if your business's historical financial performance is strong, lenders want to be sure of the future viability of your company. This is why conditions are included in the 5 Cs of Credit. Understanding why lenders use the 5 Cs of Credit to assess the financial health of your company will increase your chances of a successful loan application.
Community Business Finance's knowledge and experience with the 504 Loan Programmakes us the perfect partner to finance your business dream.
To Get Started fill out a short online form and a loan expert will contact you.
You can also contact our offices:
In Texas call Bill Ebersole at 713-457-1650, ext. 201, or email him at firstname.lastname@example.org.
In Louisiana, call Jeanne Bergeron at 1-800-462-1017 or email her at email@example.com.