With a growing, stronger economy, many small-business owners are looking for loans to expand their operations. An owner may need working capital to support the company’s growth, want to consolidate debts into one loan on more favorable terms, or purchase additional real estate and equipment. Regardless of why a small-business owner is looking for financing, lenders usually apply the same rules to assess the financial wherewithal of the business.
Financial institutions assess the quality of the potential loan by testing the “Five C’s” of credit. The “C’s” are: character, capacity, capital, conditions and collateral. As a business owner, here are the five areas to consider as you prepare to obtain financing and assess how you’re doing. Each is important.
Character typically shows a small-business owner’s willingness to repay the loan. Lenders collect three years of financial statements to see trends and behaviors that borrowers display. Typically, three years is a long enough period of time for a small business to encounter a hiccup, a difficulty, or other hard times. By looking at the borrower’s behavior during a difficulty, the lender will learn how the borrower reacted when he had his back up against the wall. Did he continue to pay the obligations? Did he short-sell his property or close a company or line of business? These can be indicators of the borrower’s character.
Capacity…(read the rest of the story)
Written by: aga merx
Originally published by Utah Valley Health and Wellness