Equipment Financing And The Five Cs Of Credit Evaluation

Equipment financing lenders, as well as banks, use the Five Cs to evaluate loan applications: Character, Credit, Cash Flow, Capacity and Collateral. However, while banks look at small-to-medium size companies from a Fortune 500 perspective, equipment financing companies see applicants from a small business perspective, which highlights a sixth C: Common Sense.

Here is what a lending institution means when referring to the Five Cs:

Character – Every lender wants to understand what type of borrower an applicant will be in order to make smart, safe credit-granting decisions. The longer a company has been in operation, the more its payment history and outstanding credit reveal managements attitude toward debt and making timely payments. Public records and references can come into play; still, the most reliable yardstick is the character of a smaller companys owners. How they manage their personal financial obligations is usually a reliable indicator of the likelihood of their making timely payments. The more closely held a company, the more attention given the personal credit history of those in charge and their prior business history. No matter how solid a...