As we kick off a new year – here’s a brief overview of the basics of credit review - Say “CHEERS”!
C – Cash Flow: Does your company generate enough cash flow to make the monthly payment? When adding a new piece of equipment to your fleet, lenders will look at your financials to see if your company is currently generating enough cash flow to cover the new monthly payment. This might be current cash flow or added revenue that the new equipment will generate.
H – History: How long has your company been in business; what is the background/experience of the owners/management team; do you have comparable borrowing history? Lenders will want to understand where your company has been and what you project for the future.
E – Equipment/Collateral: The collateral is the lender’s security for the loan or lease. The collateral has an impact on the length of term and the rate. A new piece of equipment may have manufacturer rebates or financing, however these programs generally have very short terms and may not be affordable for your company. A late-model piece of equipment may still qualify for the longer terms and lower rates, while an older piece of collateral may be subject to shorter terms.
E – Equity: Some lenders may want to have some equity in the transaction. The lender wants to see that your company has some investment in the purchase.
R – Rate: Although most think that this is most important factor, it is only a small part of the overall parts of the deal that you need to take into consideration. Rate, structure, equity requirement should all be taken into consideration when assessing what works for your company.
S – Score: Your Company’s credit score helps the lender determine how risky the deal is. If your company has comparable borrowing history that has been paid on time, the risk is lower. If this finance request is the highest amount your company has borrowed, the risk is higher.