There are many ways that banks and financial institutions evaluate a business in terms of its creditworthiness. For example, one of the most important measures is cash flow.
A business with a strong cash flow typically scores better in the creditworthiness department than one which is cash-strapped. Lenders will always look to the cash flows to see whether the business will be able to cover the interest repayments on the loans and maintain profitable operations simultaneously.
Of course, management needs to keep an eye on all aspects of the business.
Effective leadership at top management, middle management and lower management levels will also be considered when evaluating the performance of a business for credit facilities. Other complicated metrics include leverage. This measures debt versus equity and cash flow. The greater the leverage, the more likely it is that a business will be extended credit facilities.
Macroeconomic variables also come into play when ascertaining the viability of credit facilities for businesses.
Here are a few other factors to consider: What are some of the current trends in the industry? How invested are shareholders in the corporation?
Are you credit-worthy?
Let’s explore some of the most important aspects of a company’s creditworthiness:
1. Asset vs. Liabilities
Assets Versus Liabilities is an important metric in that it determines how much the company owns compared to how much it owes. If a ratio of 2+ exists, the company has twice as many assets than liabilities. This means that effective financial management is the order of the day. Companies that have positive assets/liabilities ratios are better positioned to cover their debts.
Consider a company that has an even balance between assets and liabilities. This company may be trending towards an untenable situation where it cannot cover its debts. This type of company would fare poorly in its creditworthiness rating.
2. Range of products
The Company’s Range of Products is another important metric that can be used to ascertain the creditworthiness of a company. For example, companies that offer more than one product typically have a better product base score.
A company that has just one product could be assigned a rating of +1, while a company that has 10 products may have a rating of +5. The upper end of the spectrum indicates a more diversified product offering which is more likely to capture a greater share of the market and tends to be more resilient during times of increased volatility. Think of it as putting all your eggs in one proverbial basket, versus diversifying your portfolio.
How do you get approved for credit loans?
First of all, it’s important to distinguish between a personal loan, and a credit card loan.
If you are applying for a personal loan to start up a company, it’s important to read as much as possible about the different types of credit loan options that are available to you. In this vein, informative articles on credit loans, such as those found in CreditLoan website, will certainly be helpful.
Credit loan aggregators – sites that compare rates offered by different lenders – are especially useful in this regard. You will always want to compare the offerings of multiple providers before committing to any credit loan from a company. It’s important to evaluate a large network of providers to ensure that you get the best deal.
There are many different types of interest rates that you need to consider, including credit card rates, mortgage rates, and auto loan rates. Easy to understand guides and resources simplify the process of determining where you stand in the credit application and approval process.