The Five C's of Business and Commercial Financing
Whether a dream is establishing a small business or a giant corporation there are a number of ways for that dream to turn into a reality. Many times that dream does not come true due to lack of money. There are many individuals or groups of individuals who develop an amazing, unique, and profitable business plan; however, without the proper financing that plan rarely makes it off the ground. By understanding the five C's of business and commercial financing a well-established entrepreneur could obtain the financing needed to start their own business.
The five C's of business and commercial financing is used by financial institutions and investors around the world. The five C's of business and commercial financing is similar to a set of guidelines. They are used to determine whether or not an existing business or business plan will succeed. Before approaching a creditor, all business owners and new business developers are encouraged to review the five C's of business and commercial financing to determine if their business will past the tests.
1) Collateral - Before a financial lender provides financing to a business owner they will want a guarantee that they will receive their money back. If a business owner is just getting started or does not have any profits to show they may be required to obtain a secured loan. Collateral is used in a secure loan to reassure financial lenders that they will be getting their money back, one way or another. A home, a vehicle, and office equipment are popular items that are used for collateral when trying to obtain a business loan. An insecure business loan does not require collateral. Business owners with a solid business or personal credit may qualify for an insecure business loan.
2) Capacity - A business owner's capacity to pay back money that is borrowed is also taken into consideration when seeking business financing. With a standard credit check a financial lender can determine the number personal or business loans that were obtained and if they were fully repaid. A business owner with a history of making loan repayments on time is more likely to receive financing for their business than a business owner who regularly makes late payments or no payments at all.
3) Capital - Capital is often looked at as the amount of money that you have invested into your own business. A financial lender or an investor may be curious as to why you are seeking financial assistance before using your own assets. Many lenders or investors also want to know if you plan on using your own money to help your business succeed when needed. In addition to your willingness to use your own assets, all financial lenders or investors may verify that there are assets to use. To verify the availability of assets, many lenders request a credit report or financial records.
4) Condition - The conditions of the economy and the market are also taken into consideration when obtaining financial backing for a business. Financial lenders and investors are more likely to lend or invest money in a business that will succeed in today's market. Businesses with a poor financial outlook in the next five to ten years are not likely to receive financial backing.
5) Character - Before a business loan is obtained or an investment is made, lenders and investors need to be sure that they can believe in the character of the business owner(s) and business. In addition to character, the borrower's ability to succeed will be closely examined. Business owners with the proper amount of education and relevant work experience are more likely to receive favorable responses. Having a positive personal attitude and a constructive business plan is a surefire way to impress all financial lenders and investors.
When seeking investments or financing for a business, it is important to remember the five C's of business and commercial financing are not mandatory; however, they are used on a regular basis. What is great about the five C's is that all categories leave room for improvement. Business owners and entrepreneurs who develop their business plan around the five C's of business and commercial financing are more likely to receive financing than those who do not.
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