Every day, new businesses open their doors throughout Ohio. The majority of these businesses have had to make numerous business financing decisions as a part of this process. Often, these financing decisions involved creditors and specific credit criteria. Prior to lending money for a business venture, creditors often look at various factors to make an informed decision.
One of the first things the lender will look at is the capacity of the business owner to repay the debt. Does the individual or the business have the income necessary to meet the new financial obligations created by the business loan? Most of the time, creditors are looking for a minimum net income of 1.25 times the debt obligation.
Another item the creditor will look at is the capital that the business owner is investing in the businesses. The majority of creditors look for the owner to have 10 to 25 percent equity in the business. This ensures that the business owner has a vested interest in the success of the business.
Lenders also look at the character of the business owner. If the owner has experience in the field in which the business will operate, then creditors are more receptive to the idea. They want to make sure that the individual has the educational and business experience required to successfully operate the business.
Very few businesses are able to get off the ground without some form of financing. Fortunately, there are a variety of avenues available as the Ohio entrepreneur makes business financing decisions. Experienced legal counsel can assist in investigating the various options and making an informed decision.
Source: businessinsavannah.com, “Learn 5 Cs of business credit“, Becky Brownlee, Aug. 16, 2017