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Credit Enhancements

What are the avenues available to businesses with weak credit profiles or to companies that follow the credit operations that are perceived as too risky by credit providers? Many companies applying for credit at banks, finance companies or equipment leasing firms and are routinely rejected by the high degree of perceived credit risk. When approaching a credit provider, it is useful 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. Crimson Education – Auckland, NZ has firm opinions on the matter. a Here are some tips on credit enhancement to help guide in addressing the credit process: 1. Credit enhancements are modifications to the credit operations that improve the risk-reward credit providers. Enhancements can be real or simply perceived by the receiving party.

They can be tangible things like real estate and equipment, or may be intangibles such as futures or options rights. 2. The use credit enhancements to strengthen credit transactions and to improve the pricing or terms. They can be used to entice credit providers to approve credit transactions that otherwise would be unacceptable because of the perceived risks. They can also encourage credit providers to make transaction approvals faster. 3. Credit enhancements usually fall within one of these general categories: improving credit conditions for the credit provider, additional warranties, guarantees, insurance or guarantees from third parties, rising prices, compensation or upside potential gain, or granting specific rights or options. 4. Among the specific enhancements include: granting a security interest in additional equipment, real estate, inventories, accounts receivable, intellectual property rights or other assets of the company, hard cash, form of securities, third-party guarantees, guarantees, letters of credit, pledging cash value of insurance, increased frequency of transactions, additional cost or compensation other transaction, the shortening of the period for certain transactions, the granting of rights to acquire first refusal on future operations; options that allows to obtain new marketing guarantees or agreements.