Equipment financing lenders, as well as banks, use the Five Cs to evaluate loan applications: Character, Credit, Cash Flow, Capacity and Collateral. However, while banks look at small-to-medium size companies from a Fortune 500 perspective, equipment financing companies see applicants from a small business perspective, which highlights a sixth C: Common Sense.

Here is what a lending institution means when referring to the Five Cs:

CHARACTER -

Every lender wants to understand what type of borrower an applicant will be in order to make smart, safe credit-granting decisions. The longer a company has been in operation, the more its payment history and outstanding credit reveal management’s attitude toward debt and making timely payments. Public records and references can come into play; still, the most reliable yardstick is the character of a smaller company’s owners. How they manage their personal financial obligations is usually a reliable indicator of the likelihood of their making timely payments. The more closely held a company, the more attention given the personal credit history of those in charge and their prior business history. No matter how solid a business plan appears and how reliable a company’s owners have been in the past, the realistic lender also wants the assurance of personal guarantees from the company’s owners. This may take the form of a signature or a pledge of cash or other collateral.

CREDIT -

Business credit reports offer a quick glance at a company’s willingness to pay trade accounts on time, as well as any derogatory public records, such as suits, liens, or judgments that negatively affect a company’s credit rating. Such reports also show any UCC filings. Potential equipment lenders are interested in the depth of a business’s borrowing history. The longer a company has been in business, the easier it is for a lender to determine credit stature; a good ten- or twenty-year credit history obviously carries enormous weight. This places a startup company less than two years old at a disadvantage. So, when traditional data sources, such as Dun & Bradstreet and Paynet cannot supply adequate information, the personal credit histories of a company’s owners become highly important.

CASH FLOW -

Lenders want to see that any company applying for a loan earns enough money to meet payroll, cover fixed operating expenses, and comfortably make timely payments on a new equipment loan or lease. While there are a number of ways to define cash flow, lenders most often calculate the cash flow available to repay new debt as net profit plus such non-cash expenses as amortization and depreciation.

CAPACITY -

Capacity is similar to a football team’s depth chart. The capacity to weather bad times is equally important to a company seeking funds. Capacity acknowledges that sometimes unforeseen things happen: a key employee becomes unable to work; a major customer is lost; an economic turn-down drastically reduces demand for product or services. Any number of other unlikely – yet possible – disruptions can negatively affect a company’s cash flow. And these disruptions can be temporary or permanent. So, capacity measures a company’s ability to pay off an equipment loan or lease with cash reserves or its ability to quickly convert real estate, stock, or other assets into enough funds to cover debt.

COLLATERAL -

How much collateral, above and beyond the equipment being financed, a company needs to secure a loan or lease depends largely on the nature of the lender and status of the business. A traditional bank often requires a blanket lien on all assets of the business while an equipment finance company normally uses only the equipment for collateral. A few lenders also offer sale-leasebacks and refinancing of existing equipment debt. This allows a company to free up cash flow or lower their monthly payment through equipment loans or leases.

COMMON SENSE -

Every decision to purchase and every decision to grant financing must be based on common sense. A lender needs to understand how additional equipment will increase the company’s stability and growth. Notwithstanding the risk every lender takes and the gamble every company makes when purchasing new equipment, for both lender and borrower, the foundation of a decision to finance equipment begins and ends with common sense.

People sometimes equate money with Biblical prosperity. They sometimes measure it with the way their money piles up in their bank accounts. This is absolutely wrong.

Biblical prosperity cannot be found in the form of finances. It is something that can be found inside one’s self. Ironically, the very thing that man desires becomes the root of all evil.

“But those who desire to be rich fall into temptation and a snare, and into many foolish and harmful lusts which drown men in destruction and perdition. For the love of money is a root of all kinds of evil, for which some have strayed from the faith in their greediness, and pierced themselves through with many sorrows.“

1 Timothy 6:6-10.

Money seems to be able to buy everything, but only when it is too late that you’ll understand that it cannot buy you true happiness. Happiness cannot be measured by the amount of money in your wallet. Biblical prosperity will elude you forever if you keep on looking for money to be happy.

Understand that even the poorest among the poor finds it easy to get Biblical prosperity. Why is that so? It is because they are happy with whatever God decides to bestow upon them. God provides people with ways to have all this. It is up to man to decide if he indeed wants that Biblical prosperity in his life.

The state of your finances can very well provide you with Biblical prosperity. How? Look beyond the numbers. Choose to look at how wonderful a life God provided you. Count your blessings. And surely, you’ll say that indeed you have found your kind of Biblical prosperity.

Read your Bible every day. Find that it comes to those who are ready to have it. It is not as elusive as some people have described it to be. As a matter of fact, it is one of the easiest to achieve.

Stop doing your Mathematics in the wrong way. Be guided with the philosophy behind it. Subtract your greed, envy and fears. Add appreciation, belief and values. With this, you’ll end up with blessings you have never asked to have. This is Biblical prosperity.

And of course, ensure that your prosperity will last by sharing it with others. Live by it and let others live.

Whoever sows sparingly will also reap sparingly, and whoever sows generously will also reap generously.

Each man should give what he has decided in his heart to give, not reluctantly or under compulsion, for God loves a cheerful giver.

2 Cor. 9 6,7

Always remember that there are also those who seek the Divine Providence of prosperity. Be their selfless guiding light, the way God did it for you.

What are the facts of your current financial situation? Do you have access to information about your income and expenditure, your asset and liabilities? You surely have an idea of how much you earn on a monthly or weekly basis but can you trace where it all goes? Can you calculate your net worth? Ignorance of your financial situation is no joke it is sleepless nights, it is working harder for every penny instead of letting your money work for you, it is anxiety and stress and the list goes on. You must gain control of your money!

I recall that, gaining control of my cash flow was harder than learning how to how to speak in public! At a time, I was making a five figures salary as a software engineer of a medium size IT Company and yet my personal finance was a mess! I had about three credit cards that I was seriously struggling to repay. I also had two personal accounts with two clothing shops and a bond. With every raise and bonus, my spending almost doubled! I was using more than 40% of my income to buy things I did not need. It took me a while to realize that, my financial situation depended on how much I saved and definitely not on how much I earned!

As long as you consume every cent you earn, you are caught up in a self-created trap. You must take action to reduce your expenditure and start saving. Financial freedom requires you to define your purpose.

How do you manage your finances?

Inventories: Get a note book and list all your assets, income, liabilities and expenses. Keep it up to date on a monthly or (preferably) weekly basis.

Review your expenses: Cut your expenditure by 10% for the first 2-3 months and stick to it. I know it will be very hard at first but do not give up. When you get comfortable with the current situation, add another 10% and keep doing it thereafter every 2-3 months. If you are serious about your finance, by the end of the a 12 month period, you would have cut your expenses by at least 30%!

Start saving: Save a portion of every penny you make. Begin with 1% and increase it by another percent every month for a year. Yes, you’ve guessed it right, by the end of the 12 months, you will be saving about 12% of your main income. Now add the 2-3 months living expenses (above) to build a cash reserve. Do not let expenditure rise with income. For every salary increase or end of year bonus, set an automatic transfer to your savings account.

Get out of debt: Pay off debt with the highest interest rate first (credit cards etc…) and maintain minimum payment on everything else first. Seek professional help if you have to. Make sure you only keep one credit card (strictly for emergency use).

Invest wisely: Once you are in financial control and debt free with cash reserve, you can start thinking of investing in the stock market or unit trusts. Read more about it on my site.