“A” Plus Credit – Where Do You Rank?

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.

A+ Credit

• Perfect personal and business credit with many lines of credit
• No Bankruptcies
• Low revolving debt
• Few credit inquiries in last 12 months
• No evidence of suits, liens, collections, or judgments
• No foreclosures or repossessions
• Excellent score in credit desk
• No slow pay activity on personal or business credit
• Business should be established over 5 years with strong D&B Report
• Strong financial statements may be requested for lowest rates
• True A +credit can apply for lowest rates available

A Credit

• Excellent credit with many lines of credit
• No Bankruptcies
• Low revolving debt
• Few credit inquiries in last 12 months
• No evidence of suits, liens, collections, or judgments
• No foreclosures or repossessions
• Excellent score in credit desk
• No slow pay activity on personal or business credit
• Business should be established over 2 years with strong D&B Report
• True A credit may qualify for best “Application Only” rates available

B Credit

• Good overall credit with many lines of credit
• No Bankruptcies
• Lower revolving debt, under $25,000 and under 50% credit utilization
• Few credit inquiries in last 12 months
• Evidence of suits, liens, collections, or judgments that are satisfied or under $1,000 aggregate
• No foreclosures or repossessions
• Good score in credit desk
• No recent slow pay activity on personal or business credit
• New businesses and Business over 2 years old with good business credit

C Credit

• Bankruptcy on credit bureau or business over 5 years old
• Evidence of a few slow pays to creditors
• Open suits, liens or judgments (less than $1,000 aggregate)
• No foreclosures or repossessions
• Revolving debt considered high, or high utilization of available credit
• Explainable, high credit inquiries in last 12 months
• Credit bureau scoring not within credit desk standards
• These credits are considered on a case-by-case basis. Financial statements may be required
• Unfortunately, we cannot lease to businesses under 2 years old with this credit criteria

D Credit

• Bankruptcy less than 5 years old
• History of slow pay to creditors since bankruptcy
• History of suits, liens, judgments or collections
• Foreclosure or repossession
• High revolving debt on credit cards (without acceptable tax returns)
• High credit inquiries in last 12 months

Structure programs usually required if approvable and financials will be required.