One of the biggest concerns for most entrepreneurs is funding. There is nothing more frustrating than preparing a business plan and being turned down for a loan time and time again. The 5 C's of business credit are what banks use to evaluate a borrower and determine from both a qualitative and quantitative stand point whether their business proposal is viable. Understanding where you excel and where you lack can help ensure you are applying for the right types of loans or what areas you needs to work on to become a more desirable loan candidate.
Capital
Your personal money. What is your skin in the game? Just like a conventional mortgage, most banks like to see a cash injection from the business owner.
Capacity
Your personal debt to income ratio and future business projections. Will you be able to repay an additional loan? Write a detailed business plan including a well articulated cash flow section and resolve any red flags on your personal credit report before applying for a loan.
Character
Your personal experience. Will you be able to operate a profitable business? Provide relevant information in your business plan regarding your personal business acumen and demonstrate your industry knowledge.
Collateral
Your assets. What do you have that the bank can take if you default on your loan? While personal real estate is a common form of collateral, think about other assets that can be easily liquidated like equipment or inventory for your business.
Conditions
Your business plan. Is your business sustainable? Make sure you have included detailed market research to establish the demand for your business and economic projections to demonstrate demand in the future.
Interested in learning more about entrepreneurial finances? Ask a Librarian for additional suggested reading and resources to help improve your 5 C's.
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