Business Creditworthiness

Criteria for Business Creditworthiness

Creditworthiness is probably the single most decisive factor whether companies will lend, increase line of credit, or sell to a business. Creditworthiness is not only based on your company's business reputation but also the company's overall financial strength. Banks, suppliers, and others who provide credit for your business, will examine the business credit report to determine the company's creditworthiness.

Your company's creditworthiness depends on 4 basic criteria,

Financial strength

Character Traits of the business

Economic environment

Financial Strength

The financial strength of the business is one of the most important variables to infer creditworthiness as it measures whether the company has the financial resources to repay its creditors. Fundamentally, it is the financial resources available to the business, which could be in the form of cash, funds from debt or investment. Business capital can be in the form of short or long-term. Short term Working Capital is the measurement of the availability of liquid assets of a company has to fund its day-to-day obligations, such as,

Repayment of interest on loan

Bill payments to suppliers

Employee salaries

Tax liabilities

These are elements in the business cycle that can quickly absorb cash. If working capital dips too low, a business risks running out of cash. The availability of a bank credit line is often used to smooth out peaks and valleys of a business cycle.

Long-term capital is usually a loan obligation with maturity date that is more than 1 year. When utilize properly, a company can optimize the use of the borrowed money to finance long-term investments and use the earned profit to pay for the interest of the borrowed money.

Lenders also calculate specific financial ratios to determine where the business stands within the industry and in comparison to other businesses that are similar in size. This portion of the credit business report closely examines the financial statements for items such as; working capital, debt to equity, cash flow and net worth.

Character Traits of the Business

Lending institutions compose an evaluation on whether the business has the management ethics to stand behind its business transactions. Character in business consists not only of ethical attitudes (such traits as high moral values, diligence, determination, confidence, perseverance, responsibility, resourcefulness, trustworthiness, efficiency, and respect), but also the company's credit history and other operational traits.

Business character is frequently determined by analyzing the credit history or credit score of the business. To acquire a business FICO score a business will require at least 4 trade references. Factors affecting a business credit score include:

Timeliness of payments

Unpaid accounts

Outstanding debt

Available credit

Although credit history is major factor, there are other factors used to judge business character and they include:

Owner's know-how and experience

Structure of business

Size of business

Years in operation

Economic Environment

The economic environment surrounding the business will have external events that can affect the operations of a business. These circumstances are all examined by the lending institution to determine creditworthiness. These external factors will include the overall economy, growth within the industry, government regulatory changes and more.

The business credit score is used by creditors to establish the risk versus reward of granting a business credit, and is also used to establish the interest rate on loans and business lines of credit. As the business credit report affects the operations of the business, it is within your best interests to build an excellent credit rating.

As it is with the individual credit scores, it is important to review your business credit profiles from credit bureaus at least once or twice a year. Make sure the information is accurate. Upon finding errors, contact the appropriate bureau and report the errors immediately with proper documentation.

Buying a Business

Before getting into business you will need to find what type of business you believe you are qualified to run and would enjoy owning. This should be based on your own skills, interests, personality and location (unless it is an online business) but in saying that you should still take an interest in the business overall. Working out this first hurdle will help you determine which type of business will provide you with the life style you desire, and hopefully turn a profit in your new business venture. Finding a business to purchase should be the final step in a process that begins with self-evaluation and a deep financial assessment.

When you have established a budget and the location you would like to be in, you should start searching for businesses for sale in local newspaper advertisements and online websites. In most metropolitan areas, the Weekend papers will have a large 'Business Opportuntiy' or 'Business for Sale' section and you can contact owners directly. Alternatively, you can also place an ad stating that you are looking to purchase a specific type of business.

Some websites these days even allow you to sign up for free and create a business wanted profile or even set alerts for the type of business you are looking for, this can be a great tool when looking to find your business of choice.

You can save your self considerable headaches by buying businesses which are already established, its always easier and safer then starting a business from scratch, not only that a huge saving of your own time.

Statistically a large number of start-up businesses will fail within the first 12 months, with those surviving often being sold to have their new owners make the real gains. So let the hardened entrepreneurs take the risk, develop the market, and find out what works and what doesn't. In buying an existing business you are getting;

(1) History Of the Business

The previous owner has operated this business and will be able to show you it's financial records, it's cash flow, sales and expenses. All this lessens the risk to you and your bankers, showing the companies performance and providing you with a platform on which to build.

Before starting out decide what you want, what your objectives are, and understand your strengths and weaknesses. Plan the process. This can also be found by looking up the businesses ABN using ABN lookup or other online tools

(2) The businesses database

These are the people or businesses that already do business with you. This means cash flow from day one.

(3) Existing products or services.

They have already been developed and accepted into the market place.

(4) Existing employees

Experienced and skilled staff who understand the business and it's customers, most valuable to any going concern. Save time recruiting new members of staff.

(5) Operating Systems

These are key in any business activity. How the business operates, what keeps the customers coming and the cash flowing? This ties everything together. It's your business formula developed by the previous owners; it may be perfect, or it could be in need of major changes.

The Purpose of a Business

When purpose is unknown abuse is inevitable. An understanding of the purpose of the Christian business will help us in our approach to handling and running our businesses.

Many say they have a Christian business, without fully understanding the concept of a Christian business.

The truth is, a business entity is neither Christian nor non-Christian. A Christian business is one run by a Christian, who engages Biblical values and principles as taught in the word of God, in the day to day running of the business.

The key to running a Christian business is a commitment to making decisions on the bases of scriptures and not on situations, feelings or what is acceptable to society.

As we run our businesses in the way of the Lord, we honor God and ultimately bring glory to His name.

This is the purpose of every Christian, in business or otherwise- to glorify God. And this also, is the primary purpose of every Christian business.

"........whatsoever ye do, do all to the glory of God."1cor 1o:31

Our businesses must bring glory to God!

This can be achieved, as we use our businesses to serve God's purposes on the earth.

Early in a business career, the most important thing to the entrepreneur is how to break even and keep the business running. Later it becomes important to make profit and build a bigger business.

And this is why, it is crucial for the Christian business man and woman to have a priority system, that will help to maintain balance. Maintaining balance is important in a spiritual sense just as in a material sense.

If all other functions of successfully running a business organization are neglected in the pursuit of evangelism, the business would run aground.

We must position the business to generate revenue and make profit. God is interested in our businesses making profits. He wants us to prosper in whatever we do.

"Thus saith the LORD, thy Redeemer, the Holy One of Israel; I am the LORD thy God which teacheth thee to profit, which leadeth thee by the way that thou shouldest go."Isaiah 48:17

"And he shall be like a tree planted by the rivers of water, that bringeth forth his fruit in his season; his leaf also shall not wither; and whatsoever he doeth shall prosper." Psalm 1:3

Yet we must not neglect using the business to serve God, as we propagate the Gospel.

Therefore, the priorities really mean what are my goals, and can my goals be balanced to achieve the overall objective of serving God while meeting material needs.

Business as Instrument of Evangelism: When placed side by side, the profit of a business is rather trivial compared to the value of a soul. But if used properly a business can be used to change the lives of countless lost people.

"For what is a man profited, if he shall gain the whole world, and lose his own soul? or what shall a man give in exchange for his soul?" Mat 16:26

An entrepreneur can use his business as a tool to influence people within his sphere of business dealings and operations by helping them to hear the Gospel of Christ. And thereby many are led to Christ.

Financing the Gospel: We can also set apart, a certain percentage of the profits from our businesses, for kingdom work. Sponsoring Gospel crusades, mission work and building worship centers are commendable and laudable things we can do for the kingdom of God, as God helps us to make profits in our businesses.

By this, our businesses are bringing glory to God, as lives are being transformed and impacted.

".....My cities through prosperity shall yet be spread abroad;...." Zec 1:17

Carrying out all these, will not be difficult if we understand that all we have, we received of the Lord.

"For who maketh thee to differ from another? and what hast thou that thou didst not receive? now if thou didst receive it, why dost thou glory, as if thou hadst not received it?"1cor 4:7

Also worthy of note, is the fact that all God has ever done, and He will ever do, will be done for His pleasure.

The business and the profit He gave you, He gave for His pleasure.