Regardless of where you seek funding - from a bank, a local development corporation or a relative - a prospective lender will review your creditworthiness. A complete and thoroughly documented loan request (including a business plan) will help the lender understand you and your business. The "Five C's" are the basic components of credit analysis. They are described here to help you understand what the lender looks for.
Capacity to repay is the most critical of the five factors, it is the primary source of repayment - cash. The prospective lender will want to know exactly how you intend to repay the loan. The lender will consider the cash flow from the business, the timing of the repayment, and the probability of successful repayment of the loan. Payment history on existing credit relationships - personal or commercial- is considered an indicator of future payment performance. Potential lenders also will want to know about other possible sources of repayment.
Fair Isaac & Co, or FICO, is a generic term for a credit bureau score and refers specifically to model used by FICO. There are other statistical models, however, FICO is the most widely known.
Credit scoring has become widely accepted by lenders as a reliable means of credit evaluation. The credit score condenses borrowers credit history into a single number. FICO and the credit bureaus don’t reveal the exact methodology for computing the numbers.
FICO scores vary from 375-900 points. The higher, the better. To get the best interest rates, you generally need to score 680 or higher. Someone with higher than 680 is considered to have “A” credit. If you score below 620, you will generally pay a higher interest rate on your mortgage and your credit is considered “sub-prime.” If your score is between 620 and 680, the lender may decide which category you belong based on factors such as income, assets, payment history, etc.
Maximizing the Web’s convenience, accuracy and speed, IRS.gov -IRS’s web site- now assists millions of individual taxpayers, tax professionals, and small business owners to better understand and meet their tax responsibilities.
Updated Virtual Small Business Tax Workshop
The IRS’s Virtual Small Business Tax Workshop is an interactive resource to help small business owners learn about their federal tax rights and responsibilities. This dynamic educational product, available online and on CD 24/7 from your computer, consists of nine stand-alone lessons that can be selected and viewed in any sequence. A bookmark feature makes it possible to leave and return to a specific point within the lesson. Users also have access to a list of useful online references that enhance the learning experience by allowing them to view references and the video lessons simultaneously.
Keeping up with federal tax requirements is not easy in today’s fast-changing business environment. Even if you use a tax professional’s services, you still need to know and understand your tax responsibilities.
That’s why the IRS offers you a time-saver: IRS e-News for Small Businesses. E-news is a bi-weekly newsletter that alerts you to what’s new, hot and important for small business owners to know. It’s quick to read, easy to subscribe – and it’s free.
IRS e-News for Small Businesses features:
Tax dates for small business owners, to help you avoid missing a deadline
Last week the U.S. House of Representatives passed the Credit Cardholders’ Bill of Rights - a common sense financial system reform and consumer protection. This bill provides tough new protections for consumers facing excessive credit card fees, sky high interest rates and unfair agreements that credit card companies revise at will.
This bill is important to the establishment and growth of minority businesses because a greater proportion of minority-owned firms are started or acquired by using credit cards (10 percent of firms) among other sources of capital, compared to non-minority firms (9 percent of firms), according to MBDA’s “Characteristics of Minority Businesses and Entrepreneurs.” (March 2008)