The recent increase in M&A activity would suggest the credit markets are beginning to thaw at the highest levels.  Hopefully this means the small business market will see activity in 2010 though exactly when remains the mystery. Being prepared to act is therefore important.  It’s a good time to review where you and your business stand on what the lenders call the “5 C’s”  which is how they evaluate the creditworthiness of a business.

1. Character: What is your company’s credit history and how likely is it the loan will be repaid? If you know you will borrow you then need to know what you will use the funds for and how you will generate the funds to repay the loan at the appointed intervals.
2. Capacity: Will the company generate sufficient cashflow to meet current and future repayment requirements? As part of the process of applying for the loan a detailed cashflow analysis should be prepared.  Ongoing the cashflow analysis should be updated monthly at a minimum.  You don’t need any surprise cash shortages surfacing.
3. Collateral: Do you have non-business assets that can secure the loan? For the small business owner this often means putting up the family residence which can be a scary proposition.  All the more reason to stay on top of cashflow.
4. Capital: Do you and your business have sufficient net worth to justify this loan? It will be important to have current and personal financial statements available.  Also asking if the lender has minimums is important before getting too far in to the process.
5. Conditions: What outside factors, for instance the economic outlook and competition, could impact repaying the loan? Knowing what is happening in your market(s) is critical.

Lenders are also looking at how quickly you collect your accounts receivable and pay your accounts payable.  The aging of accounts receivable and accounts payable needs to be updated weekly and examined periodically throughout the week.

Taking time now to get your business in credit shape will pay-off for when the thaw reaches the small business loan market.