When someone says a company has “AAA” rated credit they mean the credit is good, real good. In essence, they are at the highest level of credit worthiness which is a measure of their ABILITY and READINESS to pay back debt. Keep in mind it’s both attributes; just because someone is sitting on $1MM or has good cash flow doesn’t necessarily mean they have good credit because they may be “able” but not “ready”. The “readiness” to pay debt is indicated by things like the Paydex score (how timely open accounts are paid back) and how effectively other lines of creditor other leases/loans have been managed in the past.
The other end of the spectrum is the C and D credits which are businesses which do not show they are capable, willing or able to pay back debt consistently. These are the cases where asset-based lending and factoring receivables can be used. If you have solid assets like equipment or real estate or accounts receivables from a variety of established clients, then credit rating can be secondary and you will have access to capital.
Overall, 3 companies report on business credit which are Moody’s, Standard & Poor’s and the Fitch Ratings; they measure key criteria and come up with a risk profile for each type of entity very similar to the FICO scoring system.
When applying for equipment financing, it is good to be aware of all the factors that are being measure so you can have a realistic understanding of the process. A FICO of 650 may work for a mortgage lender but not for an investor group funding technology projects. Keep in mind that to get the best rates, you have to have a positive balance in all credit areas; not perfect balance, just positive. If you have $1MM in the bank but poor personal credit, poor cash flow and a default, you may get approved but it would most likely be at a riskier credit level. When there is weakness in one area, strength in other areas can help boost it up but only to a certain extent.
As guidelines, here are general criteria for small business financing; mid size companies have similar criteria without the personal credit component factored in.
Structure programs usually required if approvable and financials will be required.