The 5 C’s of Business Credit

I know that building business credit can seem mysterious and even intimidating. Similar to learning how to use social media, understanding the 5 C’s of business credit is an essential part of starting or running a business. Learn more about each C and suggested next steps for them.

Character

Character refers to your business’s reputation for repaying debts and fulfilling obligations. Lenders and vendors will look at your business’s credit history and sometimes even your personal credit. They want to see a pattern of responsible borrowing and timely payments.  Here are 2 next steps:

• Regularly review your business credit reports for accuracy and address any discrepancies promptly.
• Establish a relationship with your local bank representative.

Capacity

Capacity is your company’s ability to repay a loan. Lenders evaluate your cash flow, revenue and existing debts to determine whether your business generates enough income to cover new obligations. They may review your business’s financial statements, tax returns and projections. Here are 2 next steps:

• Maintain clear, up-to-date financial records.
• Find resources to help with questions, such as the books listed below.

Bookkeeping & Accounting All-in-One for Dummies

The Small Business Start-up Kit

Capital

Capital is the money you and your partners have invested in the business. Lenders see owner investment as a sign of commitment. The more capital you have at stake, the more confident a lender will feel about your dedication to the business’s success. Here are 2 next steps:

• Document your investments in the business and keep records of any additional capital contributions.
• Keep records of how you’ve reinvested profits.

Collateral

Collateral is any asset you can pledge to secure a loan, such as equipment, inventory or property. If you default, the lender can claim the collateral to recoup losses. Not all loans require collateral but having it can improve your chances of approval and potentially lower your interest rate. To get started:

• Identify assets you can use as collateral.
• Keep records of asset values and ownership.

Conditions

Conditions refer to the broader context of your loan request—how you intend to use the funds, current market trends and the economic environment. Lenders want to know if your industry is stable or growing and whether your business plan is realistic given current conditions. Two next steps:

• Stay informed about your industry and market trends. Arapahoe Libraries has numerous resources to assist with this. Request an Ask a Librarian appointment with the Business Librarian to learn more.
• Prepare a solid business plan that addresses potential risks and opportunities.

Establishing Your Business Credit with Dun & Bradstreet

Before you can fully leverage the 5 C’s, you need to establish a business credit profile. One of the first steps is registering for a D-U-N-S Number, opens a new window with Dun & Bradstreet (D&B). This unique identifier is essential for creating your business credit file and is often required by lenders, vendors, and even some government agencies.

How to get started:

• Check if your business already has a D-U-N-S Number on the Dun & Bradstreet website, opens a new window.
• If not, you can register for free online. The process usually takes about two weeks.
• Once you have your D-U-N-S Number, start building your credit by establishing accounts with vendors who report payment history to D&B. Timely payments are key to a strong business credit score.