Breaking down the credit mystery: Conditions

As we continue to unpack the core components of credit decisions (called the five “C’s” of credit) in a series of short articles that remove the mystery and arm you with the information to succeed with financing, it is important to understand that your surroundings matter. Today we are looking at “Conditions”:

The Economy

The economic environment surrounding your business has an impact on your ability to obtain credit. In 2008, the financial crisis nearly halted the construction industry. Backlogs lightened across almost every sector of the business and while there were thousands of very strong construction companies out there, the future was clearly uncertain to all. Because of this, lenders had to adjust their investment models to account for the higher risk—even if individual companies within that industry still showed consistency and financial strength.

Customer concentration

Business could be really good. Your company could be growing. But if too much of your revenue comes from a single customer or a small number of customers, losing a single customer could be very harmful to financial performance—especially cash flows that you use to make monthly payments on finance agreements. Lenders have to evaluate this in many circumstances and build this into their risk models.

Industry concentration

Much like customer concentration, if all your revenues are tied to the auto manufacturing business and that business undergoes upheaval, you’ll experience a massive business disruption that likely would affect your ability to meet financial obligations.


“Conditions” can also point to “glass half full” situations as well. If you have recently expanded into a new product, service, geography or won a nice new long-term piece of business and can show the upward arc of the financial impact of that event, it can impact your credit position in a very positive way. Business owners frequently overlook sharing this information or elevating it up front with a lender. These growth opportunities often require capital before the revenues are fully in place—that’s what financing is for! So, don’t forget to emphasize the growth story of your business. If you do, you might be leaving a chance for improved financing on the table.

While it may seem unfair that your surroundings can impact credit decisions—even if you are still humming right along—it is important to understand that lenders are taking a risk in your business, in your industry and even in the state of business every time you borrow money. If they manage those risks poorly by not evaluating the overall environment, the damage can be severe to all parties involved.


Here are more articles in the “5 C’s of Credit” series:


At SLS, we’ve helped small businesses succeed uncomplicated finance programs for more than 30 years. While our finance programs are competitive and flexible, what sets us apart is our people. While we may have Wall Street caliber financial resources… we’re Main Street kind of people. And maybe that’s why so many small businesses and dealers trust us time and time again.

If you want to know how to establish or grow a finance program for your company…let’s talk.

Doug Fuller



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