What’s credit analysis and why do you need one?

Is your business or company creditworthy? Not sure of the answer? Well, that’s what credit analysts are here for, so they can run a thorough credit analysis on your venture. Credit analysis is the process through which a company’s ability to repay its financial obligations is assessed. It assigns a risk rating to both the borrowing and lending party.

Some credit analyst basics include the 5 C’s. This is a checklist which evaluates the business when it approaches a bank or any other loan officer for a loan. The checklist includes Capacity, Collateral, Capital, Conditions and Character.

Other types of financial analysis techniques included in a credit analysis involve ratio and trend analysis, construction of projections and in-depth analysis of cash flows.

Improve the efficiency of your business

This analysis can benefit your business by helping it become more profitable and efficient in allocating funds to important growth opportunities such as expansion, capital expenditures and research and development. If you are a small business looking to expand and you need capital to increase your scale of production, a credit analysis will show how viable that option is for you and whether you should go for it.

Mitigate risks to expand the growth

A solid credit analysis can determine a significantly lower probability of losses occurring to the business because it helps manage default risk. Similarly, it can persuade businesses to mitigate the risk of taking economically inefficient decisions. The projections made can be very helpful in incorporating important changes in your management or the relevant area of your business. If your business is good for credit, it will make you more eligible or a loan.

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Use the analysis in making profits

A credit analysis can be useful to calculate the credit rating of a bond issuer. This will help to single out the companies which are going to face changes in their debt rating, someone who is willing to invest can use this information to make profits.

Crucial for companies seeking bonds

Some investors have multiple bond offerings from various companies that want funds that they have planned to allocate in their own business. Investors tend to use the analysis to check the credibility of the company to be able to afford to meet the demands.

At Masters Credit Consultants we believe a credit analysis is the primary step for your credit improvement plan. For more information on our services, and to avail all sorts of credit repair services, sign up now!