Small business investors and the five C’s of good credit

Investing in a small business is not a simple decision. Buying a business is an even tougher one. But regardless of the investor's intentions or goals for the company, they need to maintain good credit in order to continue to finance their investments.

John Seelinger, a volunteer at SCORE, a non-profit organization dedicated to helping entrepreneurs and small business owners, reminds investors that there are five key points to maintaining good credit.

"The five C's are very important," he told Inc. magazine. "You can't afford to be sloppy or haphazard with them. The underwriting process may be different, but the fundamental five C's are always there."

The first is "capacity," which refers to a business' or investor's ability to repay a lending debt.

"Character" reminds borrowers that banks and other investors want to be sure they are lending to reputable and trustworthy individuals.

"Capital" refers to the level of investment an owner has made in his or her business, as a lack of personal investment will likely discourage banks and creditors from offering their own funding.

"Collateral" may be the most important consideration as lenders are far more likely to offer credit to businesses and investors that have offered some line of insurance in the case of bankruptcy or negative ROI.

The final, "conditions," refers to a lender's desire to know how their credit will be spent and to what it will be invested.      http://www.bizilla.com/blog/2010/12/small-business-investors-and-the-five-cs-of-good-credit/