The Five C's of Lending...Getting Financing For Your Business

The Five C's of Lending...Getting Financing For Your Business

"Knowing the Ropes" is essential to positioning your company to be able to be in a position to be bankable and to get a line of credit or more permanent financing when it is most needed by your business. Just as you cannot obtain fire insurance the day after a fire and to have it cover a past loss. Similarly is it true, that you cannot one day decide to "get a loan" and acquire needed financing as easy as picking up the phone and ordering it, as if off a menu. Though restaurants respond well to that sort of relationship and, in fact, they cater to it, banks and lending institutions often have Lending Boards, Boards of Directors, Review Committees, Shareholders, Officers and many regulatory authorities they all answer to. As such being aware of what they are looking for is essential to any search for financing. Getting "your financial ducks in a row" is the first part of the process. Failure to satisfactorily address all of these variable components will do much to impair your firms ability to procure monies for operating and capital financing needs.

Cash Flow. A lender will look at your internal books and records to ensure that there will be adequate cash flow available to pay for all of the business normal operating expenses, including all salaries, including the owner. In addition to the past operating results of the business a bank will review to make sure that substantive cash flow is available to safely ensure that all required loan payments, including principal and interest, will be made on a timely basis. One old adage to be constantly aware of is "that cash is king" for without it, many business opportunities will be lost, due to poor planning and under capitalization.

Credit. Your credit score is the banks source to independently determine and verify you past track record of paying and keeping your financial obligations current. Though there are many things one can do over time to improve your credit, the best change in your credit score will be dictated over time by you obtaining reasonable credit limits and sources and then the timely payoff of any and all existing obligations. When cash flow permits paying your bills in advance will do much to help ensure that you are a favored creditor. If you have had a bankruptcy or default in your past, often it will take many months or several years for those events to "season" and for you to improve past blights on your record with sound financial management and prompt bill payment.

Collateral. Part of the recent demise in our economy is that banks and lenders failed to stay committed to tried and true lending criteria that had worked previously for decades. Collateral is essentially the amount of the commitment that a borrower makes themselves in a financing consideration. This can take the form of existing cash, retained earnings, stock, real estate, property and any other substantive item of value that you and the bank agree. Though banks never make a loan in an effort to "get at" the collateral, having it available as a backup, in the event of a default, does much to help mitigate a banks given exposure on any particular loan.

Character. Who you are, what you do, what strengths you have, how you work, your past successes, your present working habits are all essential parts of your character that a bank will review when evaluating whether or not to extend your company a credit line, mortgage or bridge financing. Banks do people frequently because of the people who run a business rather than the business itself. This is especially true if you are a business that is relatively new and growing and therefore the business is still interlocked and identified with who the owner is, rather than what the business does.

Conditions. Just as we have all so dramatically learned over the last several months what is going on in our world around us will do much to determine what will happen in the future. By our own personal and business analysis of economic and demographic trends in the areas where we live and work will tell us much about the prospects for the future. Though analyzing them will not guarantee either success or failure, they do much to provide leading indicators of potential success. A bank/traditional lender will stay abreast of this information, which is often available through your local Chamber of Commerce. For example, in Gwinnett County where I live they even have a separate operating department that keeps tracks and analyzes key economic operating criteria.

Focusing on these Five C's of Lending will not guarantee you a loan but they will dramatically heighten your awareness and understanding of what banks and lending sources are looking for. This will give you a leg up and an opportunity to put your best foot forward to ensuring adequate funding and souring of business lines of credit of financing. These items when taken as a whole will give the banker specific and general information alike when determining on whether to extend credit to you and your business. I have watched many CPA clients in Atlanta fail in their financing attempts solely as a result of failing to know what to look for. Staying abreast of your business community and trends will do much to ensure financial success.

John Dillard is a Christian Speaker/Author and Certified Public Accountant (All Rights Reserved). To See how he takes Christ along with him to work visit http://www.hiscpa.com/  (An Atlanta CPA firm) and for his latest book Overcoming Life's 9/11's: Job's Journey and to learn about his ministry visit http://www.john-dillard.com/  To contact John Dillard CPA (Atlanta Christian Author/Speaker) today call 770. 814.9304 proudly serving Duluth, GA, Gwinnett County and Beyond.

"Dare to Attempt Something so Great for the Kingdom of God that it is doomed to failure, lest Christ be in it!" What, then, shall we say in response to this? If God is for us, who can be against us? Romans 8:31 Why are these verses here? Learn how His CPA became a Christian Accounting firm visit http://www.hiscpa.com/christian-CPA.html