A loan officer’s primary concern when considering granting a loan is whether or not the loan will be repaid. Bank lenders consider five aspects of an application when deciding whether to grant a business loan. They are:
The Five C’s of Credit:
Character: the potential borrower’s references and repayment histoy help bank officials determine whether he/she has good character and can be trusted to repay the loan.
Capacity: the borrower’s ability to run the business effectively, and have sufficient “cash flow” and “profit” to make regular payments are of primary concern to the lender. Prepare a resume and financial projection.
Capital: the amount of money (equity) the borrower has personally invested in the project is important. Banks will not provide 100% of the backing in a business venture. Be willing to put your money where your mouth is.
Collateral: borrowers must be willing to put up a sufficient amount of collateral to secure a loan. Collateral may be a home, real estate, car or other personal belongings. Make a list.
Condition: the conditions surrounding the business venture is important. Is it in a field that is in great demand and in an area where that need is not being met? Or is it a business in an industry that is saturated with other firms and has high failure rate? Do your homework on this.