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How Investors Calculate Your Company’s Credit Risk

May 04, 2020 MicroBilt News

How Investors Calculate Your Company’s Credit Risk

Once upon a time, the best tool investors had available to calculate or determine a company’s credit risk was to obtain a corporate rating. Unfortunately, those were only available for larger businesses – for the most part.

Today, investors are facing unprecedented challenges as they look to determine credit risks in the face of the global pandemic and widespread economic uncertainty. The old models aren’t really up to these new challenges. That doesn’t mean you don’t have many options available to help make your business more attractive to investors.

Consider Business Valuation for Your Own Business

Business valuation tools can be instrumental in helping you secure investors or partners for your business. Not only can you present these findings to potential investors, but you can also understand more about your business outlook, your risks, and how much your business has grown over the past three years. The pandemic, and the financial fallout it has unleashed, has thrown many small and medium-sized business organizations for a loop.

Many businesses, like yours, face great uncertainty about the future. Even as some state governments continue encouraging social distancing and require some, non-essential, businesses to remain closed for the time being, there will be investors looking for opportunities. Your past performance and growth expectations can be instrumental in making your business an attractive investment for these individuals.

Business credit reports do play a role in determining the credit risks of businesses like yours. You not only need to know what your credit report says about your business, but you also need to make sure the credit report, though one small piece of the puzzle, accurately assesses your credit risks. A full comparative profile will explore financial statements for your business for a total of three years, offering a much better “big picture” idea of what is going on within your company to potential investors, but what they really want to see are the growth outlook reports for your industry and how your business fits into this growth profile.

The better you understand what investors see when they view your business, the better-informed decisions you can make about how you operate your business today, while the economy is struggling, to attract investors for the future. Reports like these can be instrumental in helping you bring your business into the future to see how businesses operate in a post-pandemic world.

Business valuations and credit risks are determined by many different contributing factors. Things like:

  • Liquidity ratios
  • Profitability ratios
  • Leverage ratios
  • Expense ratios

These things can all make massive differences in how investors view your business as a credit risk. The best thing for you, as a business owner, is to understand what your ratios are and what they reveal to investors about your business in today’s economy so that you can approach potential investors with a plan for how your business will operate in a post-pandemic world.

MicroBilt is here to help with a wide range of business credentialing products to help you, and potential investors, get to know your business, business risks, and credit outlook a little better.