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There’s a good chance you may have heard of the 4 C’s of Credit at some point in your life. But what do they mean? This blog post will explain each of the four C’s and how they impact your lendability. Read on to learn more.

The Four C’s of Credit are key ideas for giving credit. This applies to your home, car, business, or, in our case, arcade games. They are an excellent guideline for understanding how lenders think.

The 4 C’s of Credit

1. Capacity

2. Capital

3. Collateral

4. Character

Understanding the 4 C’s of Credit

Capacity: This is your ability to repay the loan. If you own a home, this is called your debt-to-income ratio. It compares your monthly payments to your gross monthly income. This becomes more nuanced for a business but boils down to having the monthly cash flow to cover expenses and debt obligations comfortably. 

We often see an arcade as a new way to make money for a business. We compare expected earnings to the financing payment.  

Capital: This refers to the amount of money an applicant has, providing a backstop in case of any issues with cash flow; a lender will likely look to the applicant as a debt guarantor. Additionally, lenders are looking for how much skin in the game you have in the business. The more “skin,” the less likely a borrower is to walk away if the going gets tough and is, therefore, more likely to work with a lender.

Collateral: A loan or lease is accompanied by security. The more comfortable a lender is with the collateral, the more accessible and re-salable it is, and the more willing it will be to lend. Think of a car dealer; they are eager to lend on cars because they know they can easily resell a used car in case of default. 

As a distributor, we are very comfortable lending on arcade games because we understand the value of used equipment and the marketplace.

Character: Most textbooks refer to this as “credit history,” but this is so much more to a lender, especially a relationship-based lender like Betson. This speaks to a borrower’s openness about their business, communication if there are difficulties, and making good on promises. 

Communication is a massive part of evaluating character. It frankly should be another C. Like a teacher loves students who participate and turn in their homework, lenders like borrowers who pay as planned, on time, and are responsive when needed. 

In Conclusion

The 4 C’s of Credit are an excellent guideline for what lenders look for when you borrow money. By understanding these principles, you can put yourself in a significantly better position to secure the loan you need for your arcade games or other business equipment. If you have any other questions about credit or lending, don’t hesitate to call us today. We would be happy to help.

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