How to Improve Your Chances of Getting a Loan
People in general often think that bankers only want to lend money when we don’t need it. And that is understandable because lenders want to minimise their risks.
However, you can increase the odds of obtaining financing when you actually need it by gaining a clearer understanding of the lending process.
Loan officers will look for sources of repayment and they will examine the creditworthiness of your business.
The Five C’s of Credit
That will involve demonstrating your company’s ability to meet the Five Cs of Credit:
- Capacity. What is your ability to meet the financial obligations of the debt, and what are the track records of both you and the business? It is a plus if you have experience in the same industry, preferably in management.
The bank will look at cash flow from operations for short-term loans and prospects for continued positive earnings for longer-term borrowings.
- Collateral. What assets can you pledge to support the primary source of repayment? Forms of collateral will include accounts receivable, inventory or a mortgage on fixed assets.
- Capital. How much equity is there in the business and how much of your own money have you devoted to the project? In some cases, the bank may ask you to provide a personal guarantee to show your commitment to the company and its success.
- Character. How trustworthy are you and your partners? Regardless of the financial forecast presented, the loan officer must evaluate your integrity.
- Conditions. What is the outlook for the economy and the industry?
Forewarned is forearmed. Understand the process, have your answers ready and convincing and you boost your chances of leaving with the money your business needs.
