When applying for a business loan, you can increase the odds of obtaining the finance you need by understanding the lending process.
When assessing loan applications, lenders will look for sources of repayment and examine the creditworthiness of both you and your business.
Basically, this will involve demonstrating your ability to meet the following Five Cs of Credit:
1. Capacity. What is your ability to meet the financial obligations of the debt, and what is your track record? The lender will look at cash flow from operations for short-term loans and prospects for continued positive earnings for longer-term borrowings.
2. Collateral. What assets can you pledge to support the primary source of repayment? Forms of collateral include accounts receivable, inventory or a mortgage on fixed assets.
3. Capital. How much equity is there in the business and how much of your own money have you invested in the project? In some cases, the lender may ask you to provide a personal guarantee to show your commitment to the business and its success.
4. Character. How trustworthy are you and your business partners? Regardless of the financial forecast presented, the lender must evaluate your integrity.
5. Conditions. What is the outlook for your industry and the broader economy?
Forewarned is forearmed. Understand the process, have your answers ready and you’ll boost your chances of leaving with the finance your business needs.