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