Planning for the Unplannable: The 6th C of Credit

Whether your business is in the idea stage, just getting started, or well-established, you learn that there is no limit to the various frameworks you can use to evaluate performance. When in the process of requesting capital, one particular framework is the “5 Cs of Credit”.

The 5 "C's" of Credit are emphasized by lenders because they are factors that the business owner has the most control over – credit can be repaired, capacity can be trained, collateral can be acquired or granted, etc. While it may take time, dedication, and effort, weakness in any of the 5 Cs can be mitigated.

There is also a sixth "C" that is spoken about less frequently. It represents what is least in your control, the business owner: This "C" is Conditions.

General Conditions

Some classic examples of Conditions include the 2008 Great Recession or 2020 COVID Pandemic. No small business owners could have anticipated the occurrence or impact of these events. They had to adapt their business plans, operations, and cash management to adapt.

Other examples of Conditions that may impact businesses in general or in a particular segment:

• Natural disasters like flooding, wildfire, earthquakes, or other causes that may have short and long term impacts on direct business operations, infrastructure, or the ability for customers to seek out a business’s services;
• Regulatory changes like minimum wage increases for businesses who depend on labor that is paid at that rate;
• Market forces that influence Landlord decisions on setting prices for rent on commercial spaces, whether they renew leases, etc. A common example across the Pacific NW in recent years is when landlords of more affordable spaces sell the land or building for redevelopment;

Situational Conditions

Of course, not all Conditions will affect such broad swaths of a geographic area. Conditions may also apply to situations like:

• A small physical therapy outfit that contracts with a particular insurance company – Conditions may apply if the primary source of income for the PT starts to experience cashflow or operational difficulties that delay owed payments;
• A sandwich shop whose best selling or flagship item are egg-based sandwiches, who may be impacted by supplier disruptions or unexpected price increases as has been seen across the United States recently;
• An outdoor gear and guide store impacted by accessibility issues to nearby outdoor recreation areas;
• An ice cream shop experiencing sales shortfalls because of long periods of unseasonably cold weather during their peak season.

Adaptability

Particularly as a small business owner, you are not expected to have answers, or mitigation plans for any Condition that may impact your business – the possibilities are simply too varied to account for them all. The best tool you have to address Conditions is the same that you would use for changing customer tastes, demographic trends, or inventory management: adaptability.

If you are building adaptability into the ethos of your small business, you will be able to meet any challenge that may present itself, known or otherwise.

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