The 4C’s of Diamonds? No, Credit
The four c’s of diamonds: clarity, carat, cut, and color. Bet you know all about that.
Well, there are four c’s of credit: character, credit score, capital and capacity.
Let’s not get them confused.
Suze Orman’s emphasis on the credit score notwithstanding… there’s more to it than she’s letting on. It’s not impossible to get a loan. It’s not as easy. But your credit score is not the beginning and the end of the story.
A quick rundown of the really important 4C’s:
- Character: WHERE is your business located, HOW many years in business, business credit score. Is your business legal? (You do know that an off-the-books business can’t borrow money, right?)
- Capacity: Can your business pay the bills? And if the business can’t pay the bills, then can you.
- Capital: HOW MUCH money is in the business?
- Conditions: Is there any collateral (cash and assets that the bank will take if your business can’t pay the loan)?
A more detailed discussion of this can be found at: The Four C’s of Credit.
Why bring this up now? It’s so early in the game. Start ups can only borrow money if they are willing to take personal responsibility for repayment. There is no track record to judge your business Character or Capacity. They won’t just hand you the Capital (the money), and the Collateral will be your home or your savings. (To a banker, these four C’s are technical terms so we’re capitalizing.)
Are there sources for start-ups to borrow money? Some. Mostly not-for-profit lenders. There’s always friends and family.
More importantly, in your notebook, figure out HOW MUCH you’re going to need and then figure out HOW you’re going to ramp up with limited funds. Yes, it’s a puzzlement.
