Many businesses need financing to get started or purchase assets for an expansion. If you’re looking for flexible options and fast approval times, you might apply for financing with an independently owned commercial financing partner like Team Financial Group. But what happens to your application after you submit it? What affects whether a financing request gets approved or denied?
In this article, we’ll answer these questions and more by explaining the five Cs of Credit that financing partners like Team Financial Group use to evaluate your application.
Before we get started, however, it’s important to know that there are no “perfect” applications for financing in the real world. Even if you feel like your business could be stronger in one of the areas described below, it doesn’t mean you won’t be able to secure the financing you need, so don’t worry. If you have questions, just contact Team Financial Group and let us do the rest. Our mission is helping all types of businesses get the financing they need.
The 5 Cs of Credit
Financing partners use five primary factors to evaluate whether they can approve a financing request from a potential client. These factors, known as the five Cs of credit, consider information about both the borrower and the financing option for which they’re applying. For commercial financing, the financing partner will analyze the finances and history of both your company and you personally.
The five Cs of credit are:
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Character
One of the most important factors companies consider when evaluating a financing request is your credit history, which is sometimes referred to as your character. (Having a negative credit history doesn’t mean you’re a bad person, so “financial reputation” might be a better term, but “character” is easier to remember.) Your credit history is a record of your debts and payments that financing companies use to determine the risk involved in providing financing.
Your credit history provides a financing partner with information such as:
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- How much money you have borrowed in the past
- Your track record of making payments on time
- Whether you have any collection accounts for past due loans
- Whether you have ever declared bankruptcy
As previously mentioned, for commercial financing, the financing partner will look at both your personal credit history and your company’s credit history.
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Capacity
After examining your credit history and depending on the size of the request, the financing partner will look at your business’ financial capacity to make payments. To evaluate this capacity, the financing company will look at your debt service coverage (DSC) ratio.
Your DSC ratio allows the financing company to understand your company’s ability to pay your existing debt obligations with your current cash flow. The higher your DSC ratio, the stronger you appear as a borrower.
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Capital
Your financing partner may also consider whether you’ve put your own capital into the proposed business investment or whether you’re relying solely on financing. However, at Team Financial Group, we gladly offer 100 percent financing for commercial equipment, so not having available capital should never prevent you from getting the financing you need.
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Collateral
Collateral refers to assets or property that a lender can repossess if the borrower defaults on a loan. The idea behind collateral is that the lender can sell the repossessed property and recoup some of their losses.
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Conditions
Conditions is a catch-all term that refers to details about the financing option itself or even outside factors that could affect the financing or your company. Examples of relevant information might include:
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- The amount of money you’re requesting
- The desired interest rates
- What you plan to acquire with your financing
- The state of the economy
- Trends in your company’s industry
- New legislation
These are just a few examples; many other factors can influence whether a financing partner can supply the amount of financing you require with the terms you prefer.
Choose Team Financial Group for Your Commercial Equipment Financing Needs
At Team Financial Group, we take a personal approach to every financing request. Our experts can walk you through the five Cs of credit as they apply to your unique business situation and help you understand how to secure the financing you need.
If you have any questions about our financing approval process or which financing option is right for your business, fill out our online contact form or give us a call at 616-735-2393.
The content provided here is for informational purposes only. For financial advice, please contact our commercial financing experts.