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The Six C’s of Commercial Credit
Instructor: Jeff Judy-Principal of Jeff Judy & Associates, Commercial Credit Consultant and Professional Speaker
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If you want help from a banker, you have to learn to think like a banker. And there's a good chance that your banker is using the "Six C’s", to evaluate your financial health and creditworthiness. The "Six C's" provide a structure that helps bankers' bridge financial and non-financial information for a complete picture of your business's financial health and prospects for the future.
If you understand how bankers build an assessment of your creditworthiness, you can avoid a lot of surprises. You will have better answers for the questions you will be asked, you will know where you need to explain a result or trend, and you'll be able to present the story of your business in the best possible light.
1-Character: What does the banker believe about your intentions, your commitment, your tendencies and habits, when it comes to executing your plans and meeting your obligations?
2-Capacity: Does the banker see a company with the resources to respond to changing conditions or disruptions?
3-Conditions: What are the external conditions that will have an impact on the company's health and success? And is your team aware of these conditions, and actively preparing responses?
4-Capital: What financial resources do you have to handle the downturn? How are you weathering the economic storm?
5-Collateral: If you were unable to repay the loan as agreed, what alternative sources of repayment would be available? Do these other repayment resources truly present sufficient value to make the bank whole?
6-Cash Flow: Is the company generating enough cash to support its operations internally? What steps are being taken to explicitly manage cash flow?
Business owners who are prepared to talk confidently about these elements with their creditors, are going to get farther, faster, than borrowers who "wing it" on these important issues. Take the time to evaluate your own business across these six C's before you engage a banker in a financing discussion.
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