With the ongoing discussions in Washington D.C. on the debt ceiling, it got me thinking about my past life as a banker. I thought I’d share some really important information that is crucial for business owners to know as they embark on a journey to launch or grow their businesses.
Over the past few years, banks have really tightened up their lending guidelines to be more conservative or “risk averse.” Does this mean they aren’t lending? No. It just means they are taking a deeper look into businesses before extending unsecured lines of credit – or any loans for that matter – which proved to put many banks (and businesses) in a bad position during the turbulence in 2008.
As a business, you have the option to purchase items up front or, many times, to finance them. At Phoneworx, we work with a third party to provide financing options to our clients if they choose to go that direction. Other options available through banks are secured term loans, lines of credit – often times secured by your company building and/or your home, business credit cards, etc. So what do financing companies look for? Below are the 5 C’s of Credit (which I learned while at PNC):
- Character – Dependability based on credentials, references, and past performance in terms of meeting obligations – to creditors, customers, your bank, employees, utility companies, etc.
- Capacity – How much debt you can handle as a business. Based on borrowing history, debt capacity, and liquidity ratios. Cash flow is a big factor here.
- Capital – How much money is invested in your business – your financial commitment.
- Conditions – Current economic conditions of your industry and market.
- Collateral – Sources of repayment beyond cash flow – hard assets. Many times this is real estate – personal and/or business, equipment, inventory, etc.
In today’s business world, a personal guarantee is often requested of the business owner. Banks want to know the level of commitment and belief you have towards your company’s success. If you are not willing to bet on it, it is difficult for a bank to justify doing so.
As it relates to the telecommunications business, if you’re in the market for a new business phone system, Phoneworx does provide financing options. But more importantly, this blog is intended to share essential items you must know when contemplating whether or not to finance a business purchase or apply for a line of credit.
If you’re ready to grow your business, a phone system just might be a step in the right direction! How? Read our blog: How to use your phone system to grow your business.
At Phoneworx, we’re committed to helping you and your business succeed on all levels.