Access To Capital/Credit

Business credit access also develops in phases. Naturally, you hope it will improve as your business matures. However, the age of your business is not the most critical factor in gaining access to credit. Creditworthiness is developed as your business demonstrates lower levels of financial risks.

monitor margins and fluctuations, we can reduce risk. Managing your business costs requires ongoing analysis of your financial reports.

Cornerstone #3 – Positive Credit Behaviors

Potential financiers often look at both your personal and business behaviors. Whatever your business, the key to that business is you, the people that own and operate it. Financial institutions use a variety of data sources to gather information concerning credit behavior. Business credit behaviors are evaluated by looking at factors such as:

Bank account balances
Timeliness of payments
Adherence to spending limits
Debt management

With today’s technological advances, many financial institutions use credit-scoring systems to rate your credit behaviors. From a lender’s perspective, the way you manage your personal debt offers insight into your personal lifestyle and helps the lender gauge your sense of fiscal responsibility.

Cornerstone #4 – Management Capabilities

Management is one of the most important considerations when a lending institution assesses your business. Sound management means getting the most out of your material and human resources. This requires:

Implementing processes to manage sales, reduce costs and improve operations
Anticipating your business’ future needs for resources
operating needs, risk, growth, financial resources, and customer care
One way management capability is measured is through clear definitions and management of business processes. Implementation of consistent processes and monitoring of outcomes are important. Meeting deadlines for business operations is also a key measurement of management capability.

Cornerstone #5 – Strong Fiscal Management

Strong fiscal management begins with your commitment to developing a top-notch financial team. This means making sure your team includes people who:

Understand standard accounting and fiscal management principles
Can keep a close eye on your business’ financial performance
Can help prepare you to meet future demands
Are able to monitor your business trends and operating benchmarks

Having these skills on your team will help you anticipate your capital needs, head off financial pitfalls and position your business for growth.

Cornerstone #6 – Reliable Financial Systems

Your business’ financial reporting systems help to keep you informed about the company’s activity levels and financial trends. Financial systems can generate reports on:

Sales
Billing
Accounts payable
Purchasing
Costs
Productivity
Payroll
Cashflow
and other important activities

To run a fiscally sound business, you must have processes in place to produce timely and accurate financial reports. These help you understand the financial state of your business and respond to its needs.

You can’t monitor what we can’t see. So lenders want to know that you have systems in place to help you track and manage your business’ performance.

Cornerstone #7 – Consistent Profitability

A true picture of financial stability is your business’ power to generate consistent profits. Ensuring profitability requires a steady revenue stream and effective cost management. If your business is profitable over a long period of time, you’ll be viewed as predictable. This opens the door for long-term access to credit and financial resources. Use your business’ financial systems to monitor the profitability of its operations and make needed adjustments.

An examination of the detailed line items in your financial reports can help you see the consistency or fluctuations of costs that impact your profitability.

By achieving the Cornerstones of Performance, your business can improve its creditworthiness and access to capital in good times and bad.

Cornerstone #8 – Personal and Business Asset Base

By setting goals, managing costs and adhering to budgets, you are likely to be viewed as a financially well-managed company. Well-managed, profitable companies accumulate earnings from excess profits. As your accumulated earnings build up, you may decide to keep them in the company as retained earnings. Or, you may disperse them as salary, dividends or distributions. Combined, these profits form what we call the “personal or business asset base.”

Monies retained or reinvested in the company become business assets. Common business assets are cash, receivables, inventory, equipment, and property. Business assets are reflected on the balance sheet of your business’ financial statements. These assets:

Help demonstrate your business’ value
Can serve as collateral for borrowing
Can help secure future credit needs

A lucrative perk of business ownership is being able to convert business profits into personal assets. And personal assets boost your personal creditworthiness. Creditworthiness is an evolutionary process. It requires an ongoing effort to strengthen operating practices and shore up weaknesses that can impact the health of the business.

Financial statements are your navigational tools throughout the credit-building journey. With a clear understanding and consistent use, financial statements can steer you in the right direction and help you avoid costly mistakes. Your business financial statement reports should offer numerical snapshots of company operations. This includes:

Your business’ health, its weaknesses and operational risks
How efficiently you’re utilizing assets and earnings
How well the business is managed relative to comparable companies in your industry

Your business’ complete business financial statement consists of three components:

Balance sheet
Income statement
Cashflow statement

Lenders rely heavily on the quality of financial reports. Sometimes banks use third-party sources to verify financial information. Errors or inconsistencies in financial information can cast doubt on the quality of your financial statements. This can result in delays and possible denial of your credit request.

In business, cashflow is everything, because it’s cash flow that pays employees, bills, and suppliers. Inventory, receivables, machinery, and equipment are important to your business, but they cannot be used to pay obligations until they are converted into cash.