Lenders such as VCF often use the 5 C’s of Credit as a framework to gauge the creditworthiness of businesses. When looking at a potential borrower, a Lender can use the 5 C’s to measure the quality of the loan by evaluating a variety of factors. As a business owner, you can increase your chances for loan approval by understanding the 5 C’s of Credit.
At a glance, the 5 C’s of Credit represent:
Character– broadly speaking, what type of person you are.
Cash Flow– the cycle surrounding the amount of cash coming into and out of a business.
Collateral– something you can pledge to back and secure a loan.
Capital– refers to the amount of your own money you have embedded in your business.
Conditions- the market conditions of your industry.
In VCF’s 23 years, we have seen thousands of different businesses in many different industries. VCF has successfully partnered with Staffing Firms, Distributors, Wholesalers, Manufacturers, and eCommerce companies, amongst others. Over time, we have built a library of how various companies operate in different industries. We may even be able to help you navigate complex nuances that exist within your industry. Having objective experts can also help you validate or uncover areas worth further examination.
What Industry Conditions does a Lender look for?
When lenders look at the Conditions of a prospective borrower’s industry, there can be discussion surrounding whether the industry is growing, stable, or declining. This helps lenders determine a company’s prospects in the future. That discussion also presents a unique set of opportunities and challenges for both the borrower and the lender. A growth industry may be experiencing growth at an exponential rate. It can be an emerging market sector, or an existing one that is suddenly growing in demand. A stable industry has matured and experiences little growth, however it still possesses steady demand for that industry’s products and services. A declining industry is one that has been losing demand over recent years, due to various circumstances. While it is important not to make any sweeping generalizations about an industry, considering the many opportunities and challenges with a proven expert makes the journey and likelihood of success achievable with higher certainty.
In addition, different lenders oftentimes prefer working with certain industries over others. Some lenders may have a better awareness and understanding of specific industries. While searching for a lending partner, make sure your lender is comfortable and experienced with financing the industry in which you operate. Shouldn’t your lender behave like a partner, who has a passion for what you do and how you differentiate yourself?
What Might My Lender Ask Me About My Industry’s Conditions?
Oftentimes, the main source of a lender’s industry knowledge is the customer. Ask yourself, “What does my lender need to learn about my industry to better serve my business?” Asset-Based Lenders want to know the biggest challenges that exist within your industry, what measures you are taking to combat those challenges, and how the lender can use their skill sets to help you address these issues. Most Asset-Based Lenders also have access to internal and external industry specialists, research reports, and publications. Paired with transparent communication, the proper expertise can help your business become more successful than it is today.
How Does Industry Knowledge Allow Lenders to Make Better Decisions?
A strong industry knowledge base enables a lender to determine risks, and maybe most importantly, discuss ways for you to consider how best to avoid them (based on your particular circumstances). With experience, a lender comes to understand common industry benchmarks and standards.
In addition, a good lender behaves humbly, listens well, and shares their industry knowledge to advise and support your business.
If you need a consultative partner who is knowledgeable on the Conditions of your business’ industry, consider Asset-Based Lending as an option for you. Take advantage of the opportunities you may miss by not securing the financing you need- contact VCF today at 804-897-1200 and ask to speak with one of our Working Capital Consultants.