Managing Credit

1. Managing Credit Gonzalo Manchego Duquesne University SBDC

2. 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?

3. 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

4. Why is credit important? • Equipment • Inventory • Working Capital • Real Estate & Renovation • Purchase of Existing Business • Generally a loan will cover: } 7 years(or less for working cap & inventory } 10- 20 years

5. 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

6. Loan Applications • The Five Cs of Credit Review • Capacity (financial projections) • Conditions (market) • Capital (equity) • Collateral (business & personal assets) • Character(credit, management abilities)

7. 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

8. 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%