5 Cs of Business Credit | Tory Burch Foundation

When applying for a small business loan, there are five important things to keep in mind. We call them the Five C’s of Credit:

1. Character

Lenders will order a copy of your credit report and look at debt repayment trends. They want to know if you pay your bills and if you pay them on time. If there are blemishes on your report, be prepared to explain them.

2. Cash flows

Lenders will look at historical and projected cash flow statements to determine whether or not you will be able to repay the loan and still have money to adequately run the business. Include written justification for your projections in your loan proposal. 

3. Capital

Capitalization refers to the basic resources of the company including owner’s equity, retained earnings, and fixed assets. You do not have to be fully capitalized to qualify for a loan.

4. Collateral

Collateral is an asset (something you own), which a lender may claim to satisfy a loan in the event the loan is not repaid according to the required terms. Often the assets purchased with the loan may serve as collateral. If the business does not have enough collateral, the bank will look to personal assets.

5. Conditions

Factors that affect the success of the company yet are external to the business will also be considered by the lender. Examples include government regulation, competition and industry trends.

A lender will want to see your business plan and feel secure that you are ready to run a business. You should also know how much money you need and be able to explain why. This is significant in getting your loan approved, in addition to proving your financial stability. An entrepreneur that does not know the specifics of their financial needs can put a lender on edge. Be prepared with your financials, projections, and business plan, and know exactly what your request is for and what benefit it will bring to your company.