Undeniably, any business needs equipment to operate well, and providing all the equipment at once is a challenging starting point of a business because the possible cost is not easy to handle by business owners, depending on how small or big their business is. With the advent of technology now, the prices of advanced equipment are truly costly that is why equipment financing becomes the trend now. Equipment financing is a business load offered to business owners wherein an equipment financing company will cover all the equipment cost by the said company depending on the kind of business they are and the kinds of equipment they need. There is an evaluation process to be followed by lenders and even the bank before approving the request of the borrower to avail equipment financing assistant loan. Here are the six C’s:
Character
Every lender needs assurance to its borrowers and one indicator is having a good character when it comes to managing personal obligations and responsibilities. The longer the company/ business in the market, the more reliable they are but for some new companies, prior business and personal credit histories are in need to be checked and evaluated. Public records and references play a vital role in the evaluation process. Additionally, to support all the documents and prior histories of transactions, the lender also asked for a signature/pledge of cash or other collateral to have an assurance to the loan.
Credit
Every company has its ups and downs. When it comes to business credit, lenders prioritize the borrowers who are more reliable and with an outstanding record when it comes to paying trade accounts on time, including derogatory public records such as liens, suits, and even judgments. This implies that newly built businesses will be having a hard time being approved compared to companies/ businesses who are running in the market for a longer time.
Cash Flow
This part is important to be checked. Knowing the goal of the borrowers in applying for the equipment financing is in need to be checked and assessed for this allow any business/ company to operate and be able to pay their debt on time and the other expenses in the business/ company.
Capacity
Every company faces uncertainties, the capacity is referring to how the business/company be able to continue paying their responsibilities even in great downfall. It checks the company’s ability to pay off the equipment loan they are having or their quick ideas on how to cover their debt in any means possible like selling the available stock, real state, or any others.
Collateral
Collateral does matter before approving any loan, especially an equipment loan. This gives assurance to lenders as a stronghold to the pledge of the borrowers.
Common Sense
Lending for an equipment loan needs common sense. Not all applications will be granted since close evaluation is needed before being able to be approved but as borrowers, there should be an in-depth understanding of the objectives of the loan itself. Everything falls on the right common sense to be able to balance on how to run the business well and to pay debts. In conclusion, the following six 6’s is an important process to follow for the protection not only for the lenders but also for the borrowers themselves.
