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Maximizing your chances of getting that loan by understanding the 5 C’s
by Mike O’Connell, SBDC Director

At the SBDC we work with lots of clients who need capital.  They need capital to start businesses, buy businesses, expand businesses, launch new products, etc.  In my opinion, there is a lot of mystery and myth surrounding the issue of what it takes to get a loan.   A great tool to self-analyze your readiness as a potential borrower is to better understand the “5-C’s” of credit:

1)      Capacity – Does your business produce enough cash to reasonably pay off a loan, in good times and bad?  If you don’t know, the SBDC can help you with business and financial planning to get a better comfort level.

2)      Collateral – Are there assets that can used to help secure the loan, as a safety net for the lender?  Machinery, land, saleable inventory, accounts receivable, etc.?

3)      Capital – What capital do you have as the borrower, both as an initial investment and to help the business weather rough spots? Lenders look much more favorably at loan application where the borrower has some “skin in the game”. 

4)      Character – a key measure of this is your personal credit rating. Please take a little time to correct any discrepancies/errors with your credit rating BEFORE you apply for a loan, it will help.

5)       Conditions – This refers to any special situations related to your application.  For example, if you want a loan to buy a rotary-dial phone business, the lender will probably have many questions to better understand this situation, relative to what’s occurring in the communication industry.

Rarely is an application perfect in all five areas, so as a potential borrower you want to be able to emphasize your strengths, and correct or minimize/explain your weaknesses.  Banks want to lend money, but with the average bad debt write-off at about 1.5%,  banks need to be “right” about 98.5% of the time, so there is little margin for error.   We can help you with classes and consulting to better prepare your loan application, as well as connect you to potential capital resources.  Good luck !


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