The 5 "Cs" of Credit Lenders Look At

Lending Criteria for small business. 

Hi guys, since I’m studying for my broker license, I figured I’d share some information I’ve learned regarding loans for small businesses. Note that this is not only for business loans but also what lenders look for when you’re applying for a mortgage loan.

Let us Begin!

Bankers are not investors.  By law and temperament, a banker is looking for solid business reasons to loan you money. For example, solid business reasons include collateral for the loan, which most real estate brokerages cannot supply.

Lenders look for your ability and willingness to repay debt. When considering your loan, lenders are judging the viability of that loan by the five “C’s” of credit:

The 5 “Cs” of Credit

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Character and Credit

Character refers to the impression you make on the lender. This is a subjective opinion that is also influenced by your educational background, professional experience, and length of time at your current residence. Lenders look at the borrower’s credit history, including the amount of money owed, the frequency of borrowing, the timeliness of bill payment, and a pattern of living within one’s means.

The credit information compiled by national credit bureaus reveals a borrower’s history of handling credit.

Capacity

Capacity refers to your financial ability to repay the loan especially in the event that the business does not prosper.

Capital

Capital is the value of assets invested in the business.

Collateral

Collateral is something of value given as security for a debt.

Conditions

What are the current state and projected state of the economy and how will that affect your business?

If possible, let’s add a 6th “C,” that would be CASH FLOW

Cash flow is the net income of an investment after operating and other expenses are deducted from the gross income. It is possible to show a profit and yet not have the money to repay the loan. As the saying goes, “cash is king!”

As always thank you for reading, I appreciate you and your time.

xx