The 4 C’s of credit
According to Mike Ford, there are four C’s that are considered when a loan company is evaluating a
business’s credit.
Character
• Has the owner or the business declared bankruptcy in the past?
• Does the owner have a good credit record?
• What is the level of industry experience?
• What is the number of years in business?
• Can the operator provide comparable credit references?
Capacity
• Does the business have the capacity to pay?
• Will the business have the capacity to pay in the future?
• What king of trends in income and cash flow is the business experiencing?
• Is the business income continuing to decline, remain level or increase?
Capital
• Does the business have enough cash available to meet the required injection?
• Does the business have enough cash reserves to provide a cushion for slow times?
• Does a borrower have enough personal cash to meet personal living expenses?
Conditions (this refers to the external conditions surrounding
the business)
• What is the competitive environment?
• Can competition come into the market and significantly impact the business?
• Are certain government regulations going to influence the business (immigration, labor, cost of labor,
restrictions on the use of utilities, water...)?
credit score (should be at least 700), the
net worth, down payments and additional
assets to pledge as collateral.
“If you are borrowing $200,000, you
should ideally have a net worth of approximately three to four times that,” Phelps
said. “Additional collateral can be real
property, equity in your carwash or CDs.”
Simply refinancing can potentially turn that dog carwash into a shooting star that generates ignificant positive cash flow.
What about refinancing?
The cause of financial stresses is not
always related to overpaying for a wash, or
due to a catastrophic drop in business, ac-
cording to Ford. “The cause,” he said, “can
be more basic. The cause can be as simple
as improper financing.”
Historically, banks have been offering 10
to 15-year financing for carwash proper-
ties and as little as five years for carwash
equipment, Ford said, adding that simply
refinancing that debt to a longer term loan
can cure the cash flow crunch. For ex-
MIKE FORD
COAST COMMERCIAL CREDIT, LLC
ample, Ford offered the following scenario:
A carwash operator with a 10-year
note on $1 million in real estate and
a five-year note on $500,000 in
equipment would pay $21,845 per
month. If that same operator
refinanced at 6 percent over 25
years, the payment would drop by
$11,845 per month. That’s an
increase in cash flow of over $142,000
per year.
