Loans

Money, Money, Money

As a small business owner, your most difficult task is finding the money to operate your business. Taking the necessary steps to prepare for a small business loan can minimize the difficulty. Learn what you need to know to clinch the loan.

Bankers making a loan approval will review a small business in the context of the 5 C's. What are "The 5 C's of Credit?" Character, Capacity, Collateral, Conditions and Capital.

Character: The bank assesses the trustworthiness of candidates for character. Factors for character criteria are: business experience and knowledge, personal and/or small business credit history, references, and education.

Capacity: The business and individual's ability to pay back the small business credit determines capacity. Bankers will review the cash flow of the business and determine alternative courses of repayment available.

Collateral:To reduce the risk of lending, collateral in various forms of assets can act as another method of repayment. Collateral would include: equipment, real estate, inventory, account receivables, and securities.

A personal guarantee (signed document) can be required as an additional reassurance of repayment. Obtaining small business credit and providing guarantees may seem troubling, but the bank really does not want to exercise its position on seizing and liquidating assets. In most cases, the banker will work diligently to find payment solutions.

Conditions: This is a review of the small business credit or loan conditions in terms of use for expansion or buying equipment. This also applies to the external environment that impact a company's ability for repayment such as: customer base, competitors, liabilities, and economics.

Capital: A business owner's investment into their own company sends a message of confidence in the business and the ability to repay the small business credit or loan. Net-worth and equity are the two key financials used. Ultimately, a business owner unwilling to invest their own funds in the company will often find banks are unwilling to take the first risk.

What’s Next

The first place to start when it comes to finding a bank loan or credit is not with your banker, accountant or lawyer but with you. In the case of most small businesses, the business is the owner so "Your Personal Credit History" is important in getting a loan.