| Equipment financing lenders, as well as | | | | for a loan earns enough money to meet |
| banks, use the Five Cs to evaluate loan | | | | payroll, cover fixed operating expenses, |
| applications: Character, Credit, Cash | | | | and comfortably make timely payments on |
| Flow, Capacity and Collateral. However, | | | | a new equipment loan or lease. While |
| while banks look at small-to-medium size | | | | there are a number of ways to define |
| companies from a Fortune 500 | | | | cash flow, lenders most often calculate |
| perspective, equipment financing | | | | the cash flow available to repay new |
| companies see applicants from a small | | | | debt as net profit plus such non-cash |
| business perspective, which highlights a | | | | expenses as amortization and |
| sixth C: Common Sense. Here is what a | | | | depreciation. Capacity - Capacity is |
| lending institution means when referring | | | | similar to a football team's depth |
| to the Five Cs: Character - Every lender | | | | chart. The capacity to weather bad times |
| wants to understand what type of | | | | is equally important to a company |
| borrower an applicant will be in order | | | | seeking funds. Capacity acknowledges |
| to make smart, safe credit-granting | | | | that sometimes unforeseen things happen: |
| decisions. The longer a company has been | | | | a key employee becomes unable to work; a |
| in operation, the more its payment | | | | major customer is lost; an economic |
| history and outstanding credit reveal | | | | turn-down drastically reduces demand for |
| management's attitude toward debt and | | | | product or services. Any number of other |
| making timely payments. Public records | | | | unlikely - yet possible - disruptions |
| and references can come into play; | | | | can negatively affect a company's cash |
| still, the most reliable yardstick is | | | | flow. And these disruptions can be |
| the character of a smaller company's | | | | temporary or permanent. So, capacity |
| owners. How they manage their personal | | | | measures a company's ability to pay off |
| financial obligations is usually a | | | | an equipment loan or lease with cash |
| reliable indicator of the likelihood of | | | | reserves or its ability to quickly |
| their making timely payments. The more | | | | convert real estate, stock, or other |
| closely held a company, the more | | | | assets into enough funds to cover debt. |
| attention given the personal credit | | | | Collateral - How much collateral, above |
| history of those in charge and their | | | | and beyond the equipment being financed, |
| prior business history. No matter how | | | | a company needs to secure a loan or |
| solid a business plan appears and how | | | | lease depends largely on the nature of |
| reliable a company's owners have been in | | | | the lender and status of the business. A |
| the past, the realistic lender also | | | | traditional bank often requires a |
| wants the assurance of personal | | | | blanket lien on all assets of the |
| guarantees from the company's owners. | | | | business while an equipment finance |
| This may take the form of a signature or | | | | company normally uses only the equipment |
| a pledge of cash or other collateral. | | | | for collateral. A few lenders also offer |
| Credit - Business credit reports offer a | | | | sale-leasebacks and refinancing of |
| quick glance at a company's willingness | | | | existing equipment debt. This allows a |
| to pay trade accounts on time, as well | | | | company to free up cash flow or lower |
| as any derogatory public records, such | | | | their monthly payment through equipment |
| as suits, liens, or judgments that | | | | loans or leases. Common Sense - Every |
| negatively affect a company's credit | | | | decision to purchase and every decision |
| rating. Such reports also show any UCC | | | | to grant financing must be based on |
| filings. Potential equipment lenders are | | | | common sense. A lender needs to |
| interested in the depth of a business's | | | | understand how additional equipment will |
| borrowing history. The longer a company | | | | increase the company's stability and |
| has been in business, the easier it is | | | | growth. Notwithstanding the risk every |
| for a lender to determine credit | | | | lender takes and the gamble every |
| stature; a good ten- or twenty-year | | | | company makes when purchasing new |
| credit history obviously carries | | | | equipment, for both lender and borrower, |
| enormous weight. This places a startup | | | | the foundation of a decision to finance |
| company less than two years old at a | | | | equipment begins and ends with common |
| disadvantage. So, when traditional data | | | | sense. |
| sources, such as Dun & Bradstreet and | | | | This article was written courtesy of |
| Paynet cannot supply adequate | | | | Crest Capital, a a commercial equipment |
| information, the personal credit | | | | financing, business equipment leasing |
| histories of a company's owners become | | | | and software financing company servicing |
| highly important. Cash Flow - Lenders | | | | all 50 states. |
| want to see that any company applying | | | | |