Credit 101: The 5 C’s of Credit

Credit is important in all aspects of owning a business. If you’re looking to start a small business or grow your current business, you’re going to need credit. However, there are no strict guidelines that lending institutions must follow when granting credit as some lending institutions put greater emphasis on other factors than others. That being said, there are some factors to take into account to put your best foot forward when seeking out credit. The International Association Of Credit Engineers is a company that specializes in getting small businesses access to credit and start up capital. Below are five important factors, or the five C’s, to consider when building your credit.


  1. Capacity/cash flow/capability. Credit is accessing capital ahead of time with the promise to pay. Thus, lending institutions want to know if you have the capacity or the cash flow if your business is seeking additional funding to pay back what you borrow. After all, if you default, the banks are out that money. The overall health of the business will be assessed, using accounting standards. Be prepared to provide balance statements, income statements, profit/loss figures, and tax documents as well.
  2. Capital. These are the monetary assets your business has already invested in the venture as well as any money you personally have invested in the business. A majority of startups use personal savings as part of their start up capital to finance their business in part. Lending institutions like to know you have something invested in the venture.
  3. Collateral. Similar to capital, collateral is in part what you own as well, but more physical assets such as equipment and real estate, as well as inventory and accounts receivable (what you are owed by customers). Again, a bank is trying to protect its investment (and its stockholders) from a loss, so it’s important to be able to show this as well.
  4. Conditions. Conditions refers to both market conditions and perhaps conditions put on your business for the funds. Banks want to ensure their risk is minimal; hence, they look at factors such as the overall state of the economy, trends in your industry, or any legislation that could affect your business. Furthermore, banks may look at the competition you face, suppliers, and your customer base as well. This is the one factor that is most likely out of your control but does affect your ability to make payments. You may also be required to say what you intend to use the funds for.
  5. Character. Your reputation and previous relationship with the lending institution is a factor in lending decisions. Work experience, particularly work experience in your industry as well as your personal credit history are taken into consideration.

One other consideration not counted as an official consideration in lending credit capital is communication. Responding promptly when asked for key financials, disclosing all your assets and liabilities, and being open and honest with what you’ll use the funds for goes a long way and could be the tipping point in a lender’s decision.

Another “C” some lenders consider and weigh heavily is credit history. For our purposes, we’ve included this as a factor of your character. However, your credit history can play a big role in your access to credit capital; hence, it’s important to review your credit report regularly, fix any errors you may find as soon as possible, and make sure you are doing everything you can to keep your credit in good standing, such as making any loan payments on time.

The International Association Of Credit Engineers offers a credit capital program, whereby we help you gain access to credit capital to provide you with a steady monthly cash flow for your business. We also offer credit consulting services, whereby we arrange large volumes of credit capital for your use, and you only pay us a fee for this service. Contact us today for a consultation!