Sports teams often have the Big Three’s when they win any championship and your business will need them too. The Big Three Cs in business financing are: cash flow, credit, and collateral. In order to have a chance to get money from a lender, you need to have at least one of these attributes thoughtfully and positively and if you have two or all three, then your options open up dramatically.

The eight traditional “Cs” in banking are: Credit, Character, Cash Flow, Capital, Capacity, Collateral, Conditions, and Commitment. For bank approvals, you often need to have all of these online, which can be quite daunting for many businesses, but with alternative or third-party financing, you really only need to consider the ‘Big Three’ and sometimes you only need one. from them.

Cash Flow – The key to receiving a lease or financial approval is positive cash flow. Most insurer formulas add net income to a portion of depreciation (since depreciation is a noncash expense) and the resulting free cash flow must exceed the amount of the annual lease payments. Many lenders require that the cash flow exceed the lease payments by a multiple of 2 to 5 times, depending on the dollar amount requested. Typically, the documents needed to verify cash flow are tax returns, financial statements, and business bank statements. When cash comes in, even if other areas are poorly managed, it shows that the business is selling and moving a product or service, which is always a healthy sign.

Credit: Dunn & Bradstreet and Paynet record the credit ratings of companies. Indicates the risk category that a company operates; Ties and defaults on other loans are also recorded. A company should pay particular attention to what is included in its report, as the information it contains is highly valued by creditors. More and more lenders are using the D&B report as an initial review of a business.

Since for small businesses, the owner can guarantee a lease transaction; Personal credit plays an important role in lease approvals. FICO is the system that records personal credit; A credit score of more than 700 is required from “A” lenders, and “B” lenders require more than 650. The main difference is that an “A” lender will finance a larger dollar amount at a higher interest rate. come down. Lenders believe that if a homeowner manages their personal affairs correctly, they are more likely to run their business in the same way. Both company and personal credit play an important role in qualifying for external financing. Don’t ignore it, even your business is making a lot of cash, but you make the mistake of not paying your suppliers.

Guarantee: Not all companies have an excellent D&B rating or all have a credit score over 650 and many have also not reported positive cash flow in quite some time. However, there is still hope if you have good collateral assets. Some lenders offer applicants leases that promise collateral in addition to the equipment being purchased. A good collateral can be stocks, CDs, heavy machinery, trucks, yellow iron, or real estate. There are certain specialized lenders for each type of collateral who know the specific market very well.

Having at least one of the C’s (cash flow, credit, and collateral) will help you get approved for external financing, and if you’re positive on all three, you’ll have a variety of options based on your business goals. Whether it’s for working capital, a location expansion, or the purchase of new equipment, you will find that alternative financing will be much more flexible based on your qualifying requirements compared to traditional loans.