Five Criteria of Creditworthiness

Okay, so you have to borrow money. You've allocated your resources, gotten help from family and friends, and still you need extra funds and are certain after a year you can pay them back from cash that the business generates.

First of all, you should have been talking to a bank a long time ago, getting money when you don't need it, which is when the bank is most likely to give it to you. But you didn't, so here you are, filling out an application for funds.

Here are the criteria the bank is going to apply to your application for funds:

1. Character. Are you a good person, paid your bills, not gotten in trouble, etc. This is usually embodied in your credit score. Get a copy of your credit report and look at it. If there's false information on there, complain and get it off. Any information you challenge, they have to initiate an investigation within a set period of time. If they don't they have to take it off. So you can usually improve your score just be challenging items. And, don't forget, start acting in a creditworthy way if you are not already.

2. Capacity. How likely are you to pay them back? Is your financial position strong enough to allow you to pay it back. Is the ratio of your debts to your assets too high? If you're maxed out on your credit cards, struggling to make ends meet, even if you have a high income, you may have some problems here. There are plenty of high earners who are also big spenders. If you're one of those, you may run into trouble.

3. Capital. They're going to look primarily at financial capital, but they're going to look at your human and social capital as well. I'll go into that next time.

4. Collateral. What do you have that they can grab if you default on repayment. Of course it's better that you sell these things and use the money, but if it's your house, you need to live somewhere. At any rate, the bank's not going to lend you all the money. You'll have to put a lot of your own money in there. That way the bank has a sense that you're in the deal.

5. Conditions. What's the condition of the industry you're going into. Are you trying to enter a dying business, or do business periodicals point to this as the next big thing?

Remember, banks make their living off of money, so they're very conservative, even in the best of times. If you have a loan officer at a local bank advising you, that helps you. But if you're new, they're probably going to be helpful but not overly forthcoming with money.

What do you think about this? If you have something substantive to add, post a comment.

This is some of the stuff that will go into my entrepreneurship course. The ideas in it supply the life's blood of my professional activities: teaching, writing, and real estate. For entrepreneurial real estate go to www.yourstopforrealestate.com/blog and for entrepreneurial writing to www.kearneymusicschoolmurders.blogspot/com.

Human Capital #5--Character

A person's character is another aspect of human capital the entrepreneur brings to the table. Dictionary.com, the free, on-line dictionary, gives a range of meanings for the word "character" germain to this discussion:

The aggregate of features and traits that form the individual nature of some person or thing; Moral or ethical quality, [as] a man of fine, honorable character; Qualities of honesty, courage, or the like; Integrity, [as]: It takes character to face up to a bully. Reputation [as] : a stain on one's character; Good repute.

For an entrepreneur, the issue of character is central. People are less likely to follow anyone who does not have integrity and character. less likely to partner with him or her, less likely to buy their products. In every endeavor, the person without character is swimming upstream in a repids. Entrepreneurship is no different than other aspects of life.

I'm interested in what you think. If this resonates with you, post a comment. And if you're interested in character, go read the whole entry and follow the links.

Entrepreneurship informs all my professional activities. For my entrepreneurial real estate blog, go to www.yourstopforrealestate.com and for my publishing blog go to www.kearneymusicschoolmurders.blogspot.com.