The 4 C’S of Business Credit

Welcome to this particular module, the four C’s of business credit, and here is what we’re going to cover. So this is going to be a fairly quick but very needed module. So the first thing I’m gonna break down is the four elements of a great credit, more specifically, the four C’s, every lender wants to see. Number one, I’m going to get into the character of the borrower, the capacity to repay capital assets of the business, and then collateral. So like I said before, I’m going to keep going back to that wealth triangle. It’s so important that you know where you are in business, and either you’re in the, I make me money stage, scalable business phase, or I’m at a place where my scalable business and my personal income that I’m generating for myself is enough for me to go out and invest in some type of assets.

So, number one, character of a borrower I know that sounds pretty obvious and really simple, but I just want to cover it, so that way we’re on the same page, right? So this really refers to your financial and credit history and character is most often determined by the borrowers are looking at your businesses and more than likely if it’s a brand new business, your personal credit to determine if you are going to be a reasonable risk. Now, my whole goal is to get you to where we can build all of this up without using your personal credit. But let’s just say, we’re at a place where we’re starting from scratch and you have nothing. Then we’re going to have to look at what we have to do to build up credit. So late payments, delinquent, close accounts, the total available credit and then the total debt is going to be looking at your character as a borrower, whether it’s an individual or a business.

Now these four C’s don’t change. It’s the same even on the lending side, when you’re trying to get a mortgage. Now, the number of accounts that you have, that’s why it’s so important that we tier this up. So I’m going to show you guys all the tiers of credit that we want to do, but essentially the goal is to make sure that we get a hundred anywhere. I would say anywhere between 80 to 85, 75 to 85 Paydex score because no miss payments when you establish your accounts, you want to make sure you’re showing credibility and you’re paying your credit accounts on time. So one of the things that many people don’t realize, especially when you’re building business credit specifically, you’re going to have to make purchases.

You’re going to have to do things to show that my business, my corporation can actually get credit, pay things by these things, but you would typically would have bought anyway, using your personal cash. But now we’re just going to say, Hey, look, we’re going to use these vendor accounts so to speak, to show that we can be justifiable, In many situations for business loans and leases, the owner may need to give a personal guarantee. Like I’m saying, I’ve already covered this, but again, the capacity with the character is huge, right? The whole goal was to get that Paydex score up to where we need to be. Now that leads me to the next thing is the capacity. And I’ve already really spoke about this at, but really it’s not about just getting the money.

I’m going to show you how to get the money. Your focus needs to be, how am I going to repay this? And the more money you want to get, it’s not really hard to get money when you know how to make money. So we want to make sure we have a proven track record. So it’s risky for lenders to consider when you don’t have a track record. So if you’re purchasing a company, the capacity is easier, but more than likely, many of us aren’t going to be purchasing companies. We’re going to be starting companies, or we already have an existing company. So from a brand new business, I’m not making any money. The limits may not be as high initially, but I’d rather you. If you’re brand new business, you’re not making at least 120 grand a year. I’d rather you let me show you how to get anywhere between 50 to 75,000, take that money reinvest in time, some type of training or program that’s going to teach you how to create a high-income skillset, then start generating some cashflow and then that cashflow can be used to show the capacity to repay. And then you’ll be able to start building a good relationship.

Now, I’m not saying that the case, but I’m just giving you the way you want to think about it because as a general rule of thumb, lenders are more likely to approve a company when it doesn’t need the funds, compare it to one that’s going to be financially strapped. I cannot stress that enough, like I’ve gotten more money when I did not need it then, when I needed the money, what I did was because I explained high-income skillset, I went out and I sold something, right. I went out and I closed somebody and I just kept doing it over and over and over and over again. So my suggestion is going to the bank when you don’t need the money and already having that cashflow coming in, because it’s going to be easy to get the money because the bank doesn’t care about the relationship or anything, they care about the relationship, but what they really care about are they going to get it bring back, right?

Now, the next thing is capital assets of the business. Now this isn’t as big, but it’s very, very important when you’re building up business credit and building business funding. So capital assets are going to be things like any type of equipment machinery and product inventory. So if you’re a one of those entrepreneurs that have a business where it’s like a retail store, that’s, that’s actually going to be an asset and accounts receivable, right? So we have a big accounts receivable here with MyMoneyEDU because we do payment plans, that’s technically an asset, that’s future cash that we have not received. So those are what we would view as capital assets and depending upon the type of lending transaction that you’re going through, that could be used towards securing more working capital, because again, we don’t get money with the expectation that we’re not going to be able to pay it back.

We get money with the expectation that we’re going to amplify what we have going on, and we make smart decisions as business people. Right? And then lastly, this is a few other things like if you have a restaurant business or whatever the case is, but basically lenders just want to know, do you have skin in the game? That’s the moral of the, you want to put some skin in the game show that you have some skin in the game, even if you’re taking some of your own personal money and then funding it in your business account, right? That’s still going to look good as a way to show that, hey, look, this guy, or this company has some working capital to use. And vendor lenders are going to love that when they see it. That’s why when you go into a bank, when you’re establishing your business banking account, put 5, 10, 15 grand in there. And if you don’t have 5, 10, 15 grand, take a loan out, put it in there, just so you can justify getting the money, which we’ll get to more of these concepts later on. But the point is show some skin in the game, that skin is going to make them feel more confident. And the algorithm is going to favor you more so that when you go and get money, you’re at a good place.

And then the last thing is collateral. So, collateral is basically cash and assets, a business owner, pledges to secure a loan or line of credit. So, I had to put up some cash for a line of credit. I got, and I did it because I wanted to build up the relationship with that particular bank. And I want to make sure that I can continue to get more work in capital from them. And I had no issues paying it back. But, you know, typically that collateral is going to be cash, it’s going to be assets, it’s going to be like I was saying accounts receivable, but essentially some banks will require an owner to pledge personal assets, as you know, as security for the loan and some type of form of a personal guarantee.

Now, ideally you’ll be able to avoid that, but essentially, you know, when your corporate credit profile is strong enough, lenders will only extend unsecured lines of credit. And that’s really where we want to be to where your credit file has justified that you there, especially if you’re making a half a million to a million dollars at this point, it’s just about making sure that instead of you using just cash, let’s start playing the game, building up the credit, showing that I’m going to use it, pay it off, use it, pay it off, use it, pay it off, make sure it’s reporting to Dun & Bradstreet, make sure it’s reporting to Experian, make sure you’re playing a game, so that way the lenders, the banks can all see this and be like, Hey, yeah, this guy, or this girl, or this company, this corporation, it looks like it’s a solid company and we’ll feel confident, lending them some money. So that’s really it. So point is make sure that you knock out these four C’s. You consider these four C’s. I’m going to break it down how you get into this, but I just want you to understand that these four C’s aren’t fundamental, but they are important. So this isn’t going to be in a pie in the sky, it’s going to get money, no, you want to be structuring these things so that way you can take advantage of it. All right. So I will see you in the next module.