Managing Credit

Gonzalo ManchegoDuquesne University SBDC

Managing Credit

• Which are the main sources of capital for the business?

• Why is credit important for my business?• Do you know your personal credit score?• Do you know how lenders rate your personal

credit score?

Sourcing of Financing∎ Personal Resources or Family/Friends∎ Grants∎ Outside Investors

∎ Angels∎ Venture Capital∎ Stock Offering

∎ Loans∎ Government Programs Including SBA, Counties, Cities,

CDC’s ∎ Banks and Other Financial Institutions

∎ Personal Credit – Smaller loans∎ Business Loans or Lines of Credit

∎ Seller financing

Why is credit important?

∎ Equipment∎ Inventory∎ Working Capital

∎ Real Estate & Renovation∎ Purchase of Existing

Business10- 20 years

7 years (or less for working cap & inventory

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∎Generally a loan will cover:

Loan Applications

∎ Business Plan & ...∎ Two to Three Years of Financial Projections

∎Monthly for first year∎Monthly or quarterly second & third years

∎ Past Income Tax Returns

∎ Personal Financial Statement

Loan Applications

∎ The Five Cs of Credit Review∎ Capacity (financial projections)

∎ Conditions (market)

∎ Capital (equity)

∎ Collateral (business & personal assets)

∎ Character(credit, management abilities)

Do you know your personal credit score?

• 47% of Americans don’t know their credit scores.

• 3 major credit reporting agencies:– Equifax– Trans Union– Experian

• Low credit scores can limit your borrowing power

Credit Scores - FICO

• 850 – 740 : Excellent . Mortgage: 3.034% Auto Loan: 3.321%• 740-700 : Good. Mortgage: 3.256% Auto Loan: 4.754%• 699-641: Average. Mortgage: 3.647% Auto Loan: 6.795 %• 640-500: Bad. Mortgage: very hard Auto Loan: 15.6%• 500-300: Very Bad. Mortgage: Impossible Auto Loan: 17%