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You’ve got a plan to grow your business and the drive to make it happen — but everything’s riding on the funding. The good news is, approval rates for small-business loans reached new heights in June 2018, according to the Biz2Credit Small Business Lending Index™. But even with approvals on the rise, the odds of getting approved for a small-business loan at a big bank are still only about 1 in 4.*
You may wonder what you can do to improve your chances of getting approved for the funds you need. Improve your odds by learning about the “five C’s of credit” that lenders use to judge lending criteria:
Capacity
This is your business’s ability to support debt. Essentially, does the revenue of your business have the capacity to support a loan? Lenders determine this by evaluating your business’s history of repayment, current amount of debt and income. In general, lenders won’t approve businesses for loans unless they take in at least $1.20 for every $1 of debt carried.
Capital
How much money does your business have to work with and how much of it was your own investment? Lenders want to know your personal dedication to your company. The more of a stake you have, the more a lender can be confident that you won’t let it fail. By putting your money where your mouth is, you can convince a lender to contribute money as well.
Collateral
Not every business that’s approved for a loan will be able to repay the entirety of what they owe. That’s where collateral comes in. Should your business fail to repay the loan, certain assets will be seized by the lender and sold to recoup losses from the loan. Such assets can include real estate, inventory, equipment or vehicles. You’ll specify these assets on the loan agreement.
Conditions
You have less control over this than the other five C’s. Here the lender considers the health of the economy, both overall and for your business’s industry. If conditions look unfavorable for your business, have a backup plan to prove to the lender that your business can sustain financial success going forward.
Character
This fifth C may be the closest that the loan approval process gets to being a matter of opinion. The lender considers your business’s references and reputation. Many lenders will evaluate this in terms of your credit history (which includes your business’s history of on-time payments), but some may rely more on your behavior when requesting the loan. Elements that may seem irrelevant, such as your personality, could say a lot about your business’s long-term responsibility.
Help your business reach new heights
Ready to ace the five C’s and move your business to the next level? California Bank & Trust offers a variety of business loans[cite::108::cite] and lines of credit to help you succeed. Contact an experienced business banker at (800) 355-0507 or visit a branch near you.[cite::171::cite] [cite::172::cite]
* Source: Biz2Credit.