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The Four C's of Business Credit

Companies rely on business creditworthiness to make critical choices, including whether: to sell to a business, lend to a business, lease equipment, increase a line of credit as well as many other decisions. To determine a business's creditworthiness a lender will investigate four areas of a company's credit report.

These are known as the fours Cs of credit and they are:

  • Capital
  • Capacity
  • Character
  • Condition

 

Business Capital

Capital measures the overall financial strength of a company, whether it has the financial resources to repay its creditors. To provide a relative comparison of a business's financial stability, lenders calculate specific financial ratios and compare them to the ratios of other companies of a similar size in similar industries. This portion of the credit report is closely reviewed. Balance sheet items as working capital, net worth and cash flow are looked at carefully.

Business Capacity

Capacity assesses the ability of the business to pay its bills. It also includes the structure of the company's debt, whether secured or unsecured, and the existence of any unused lines of credit.

Business Character

All lenders make a judgment about a company's character before deciding whether to extend credit. Character includes factors such as size, location, number of years in business, business structure, business credit history, owners experience and skills and much more.

Character is often determined by looking at the credit history or the credit score of a business. A business will need at least 4 trade references to obtain a business FICO score, factors that affect a business credit score include:

  • Late payments
  • Delinquent accounts
  • Available credit
  • Total debt

 

Business Condition

This refers to the external conditions surrounding the business that are analyzed. These external factors, include but are not to limited to the economy, industry growth, government regulatory changes as well as other factors.

Since your business credit report and your personal credit report are separate, it is always important to monitor them both to have the best possible credit scores. The Complete System to Repair Your Credit and Boost Your Credit Score will provide you with everything you need to maintain a healthy credit profile. Download Today!