How does depreciation affect credit decisions?

Depreciation impacts credit decisions by influencing the asset value on a company's balance sheet, which lenders consider when assessing creditworthiness. Lower asset values due to depreciation can reduce a company's net worth and affect its ability to secure loans or favorable terms. Additionally, lenders may evaluate cash flow and earnings, which can be impacted by depreciation expenses, potentially leading to more conservative lending practices. Overall, understanding depreciation helps lenders gauge financial health and risk levels.