Credit Enhancements: Seven Tips For Enhancing Business Credit Transactions
What are the avenues available to businesses with weak credit profiles or to companies pursuing credit transactions that are perceived as too risky by credit providers? Many companies apply for credit at banks, finance companies or equipment leasing firms and are routinely rejected due to the high degree of perceived credit risks. When approaching a credit provider, it is helpful to understand what can be done to reduce the risk of a credit transaction in the eyes of the provider. Never accept a credit rejection without considering credit enhancements. Here are a few tips on credit enhancement to help guide you in approaching the credit process:
- Credit enhancements are modifications to credit transactions that improve the risk-reward relationship for credit providers. Enhancements can be real or merely perceived by the receiving party.
Also, they can be tangible things like real estate and equipment or they can be intangibles like future rights or options.
- Use credit enhancements to strengthen credit transactions and to improve pricing or terms. They may be used to entice credit providers to approve credit transactions that would otherwise be unacceptable because of the perceived risks. They can also encourage credit providers to make transaction approvals faster.
- Credit enhancements usually fall within one of these general categories: improvement in credit terms favoring the credit provider; additional collateral; guarantees, insurance or third party assurances; increased pricing, compensation or upside gain potential; or granting of specific rights or options.
- Some specific enhancements include: granting a security interest in additional equipment, real estate, inventory, accounts receivable, intellectual property rights or other company assets; pledging cash; pledging securities; third party guarantees; surety bonds; letters of credit; pledging cash value of insurance; increase in transaction rate; additional fees or other transaction compensation; shortening the term of certain transactions; granting first refusal rights on future transactions; permitting call options; obtaining re-marketing guarantees or agreements.
- When considering using credit enhancements to improve your transactions, use these guidelines: try to get a fair and objective assessment of your credit profile and the inherent transaction risks from a knowledgeable credit person; take inventory of the possible credit enhancements your firm can provide; evaluate the cost of possible enhancements to decide whether using them will be worthwhile; if there is time and opportunity for a second chance to present your transaction to the credit provider, present it first without the credit enhancement or with the minimum enhancement you think acceptable; of the credit enhancements available to your firm, decide which ones will be effective and the degree of enhancement necessary to achieve your objectives.
- It helps to develop a credit enhancement strategy in the planning stage of your transaction. Start by understanding the transaction's credit strengths and weaknesses. Decide which enhancements available to your firm will help strengthen the risk profile of the transaction.
Try to assess the credit provider's sensitivity to various types and degrees of credit enhancement. Later, if the credit provider turns down your transaction or proposes unacceptable terms, ask the provider to suggest enhancements that will make a difference in the decision. You may be able to negotiate further, once you have this information.
- All credit enhancements have a cost. In many instances the cost is the opportunity cost of not having the credit enhancement available for future use. Before offering or providing a credit enhancement, do a thorough cost-benefit analysis to make sure the potential benefit is worth the cost to your firm.
By carefully considering potential credit enhancements, you can often improve the pricing and terms of your firm's credit transactions. If your firm has a weak credit profile, use of a credit enhancement might make the difference between obtaining financing or being rejected..
George Parker is a Director and Executive Vice President of Leasing Technologies International, Inc. (?LTI?), responsible for LTI?s marketing and financing efforts.A co-founder of LTI, Mr. Parker has been involved in secured lending and equipment financing for over twenty years.
Mr. Parker is an industry leader, frequent panelist and author of several articles pertaining to equipment financing.Headquartered in Wilton, CT, LTI is a leasing firm specializing nationally in direct equipment financing and vendor leasing programs for emerging growth and later-stage, venture capital backed companies. More information about LTI is available at: www.ltileasing.com.gpmail129-groups@yahoo.com
Credit Report ? Watch Out for Parking Tickets
The economic downturn of the last five years has affected millions of Americans, but it has also affected the budgets of states, cities and counties. With limited tax dollars with which to work, various government entities have had to try to stretch their budgets to allow them to continue to function. Many government agencies at the state and local levels have turned over debt collection to collection agencies, even for such seemingly small debts as parking tickets or library fines. What does this mean? An unpaid parking ticket could end upon on your credit report. Credit reports and the associated FICO credit score have become an increasingly important part of the lives of Americans.
At one time, the credit report was primarily used by mortgage lenders to determine if a prospective customer should be granted a loan. In recent years, the credit score and report have been used for an increasingly large number of uses by all kinds of companies. Employers use them to avoid hiring...
Credit Report ? Watch Out for Parking Tickets
Credit report > Credit Report ? Watch Out for Parking Tickets
About Consumer Credit
If you do not understand consumer credit, you will be far more likely to misuse credit, and ruin your financial situation. That is why the subject of consumer credit is so important.A lot of people get their first experience with consumer credit when they get their student credit card. This is where their study of consumer credit begins. Credit card users need to be knowledgeable in credit terms such as APR, rewards, balance transfer and cash back.You can also get department store cards specific to one brand name store. A department store card has its pros and cons.
A lot of offers are advertised if you sign up for a card, such as discounts and free gifts. However the APR on these consumer credit cards is often considerably higher than most regular credit cards.When you are a consumer of credit you need to know your legal rights so that you can protect yourself. For example if you are being hassled by collectors, you should be aware of the Fair Debt Collection Act, which lays...
About Consumer Credit
Credit report > About Consumer Credit
Understanding Credit Report Score
Understanding credit report scores is important when you see your credit report because you need to be able to make some sense of it.
Your credit score is used by anyone loaning you money such as credit card companies, home loan lenders, auto loan lenders and finance companies.
They all use your credit score to determine your credit risk.
The interest the lender charges you is based on your credit risk.
So you can see how understanding credit report scores is information that can save or cost you money.You need to find out what your credit score is before you talk to any lender in case there is something on your report that you may question.
You don't want the lender to find a mistake that you aren't aware of.
If you find a mistake, it takes at least 30-60 days before you see corrections in your credit reports and scores.You have probably heard that checking your credit will bring down your score.
But checking your own credit...
Credit report > Understanding Credit Report Score
Home Loans ? Repair Your Credit Before You Buy
Before you take out a home loan or make any major purchase, you should be aware that any prospective lender will want to take a look at your credit report. Your credit report is a record of all of your past financial dealings, and any loans, credit cards, judgements, bankruptcies or other major financial transactions are listed there. Along with your credit report will come your credit score, which is a three digit number between 300 and 850 that represents a distillation of all of the above. That score represents your entire financial life, and your ability to obtain financing for any major purchase depends on having a good one. What if you don't have a good record? Should you go to one of those companies that promise to repair your credit? What you should do is repair it yourself.
The idea of credit repair is a myth. There is no magic solution to fixing problem credit, and any company that promises to do so is only interested in your cash. Your credit report and score are maintained...
Home Loans ? Repair Your Credit Before You Buy
Credit report > Home Loans ? Repair Your Credit Before You Buy
Company Credit Report Repair Services
The steps taken by companies to repair their credit report are the same as everyone else. Companies who are in desperate need of money but cannot get a loan because of a bankruptcy or past problems with paying bills on time, may be tempted to use the services of a credit repair company.
The important thing you should know is credit repair companies cannot do anything legally that you cannot do yourself.
If your company has filed for bankruptcy in the past, those records can be reported by the consumer-reporting agency for up to ten years. If the information in accurate, there is nothing you or any credit repair service can do legally to have it removed.
Credit repair companies advertise that they can have negative information removed from your credit report, for a fee.
Usually, these companies will inform you of your rights to dispute the accuracy of your credit report. They can either dispute the negative information for you, or give...
Company Credit Report Repair Services
Credit report > Company Credit Report Repair Services
Credit.com Launches Credit Report Tip Site at LifeTips.com
Boston, MA (ContentDesk) March 21, 2006 -- Credit.com has selected LifeTips for content development services and link building strategy and, together with LifeTips, announces the launch of the Credit Report site in the LifeTips network to millions of knowledge seekers at LifeTips. Credit.com has become the exclusive Credit Report client in the LifeTips network. Were excited to work with Credit.com and bring informational and educational tips to users on our Credit Report Tip Site, said Byron White, president of LifeTips. Establishing, maintaining and protecting your credit is essential and necessary, and with the launch of the Credit Report Tip Site at LifeTips, consumers will get the best information and guidelines on how to guard their credit. Sample Credit Report Tip:* About Credit Reports A credit report is a compilation of information that gives potential creditors a snapshot of your financial responsibility. Credit reports are used by potential creditors, lenders, businesses,...
Credit.com Launches Credit Report Tip Site at LifeTips.com
Credit report > Credit.com Launches Credit Report Tip Site at LifeTips.com
Credit report
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