The 5 C’s of Creditworthiness

There are many factors that lenders look at closely upon evaluating whether or not you qualify for financing. Five key elements, or the 5 C’s, weigh more heavily than other pieces of your application. Let’s discuss those 5 C’s so you can be better prepared and get the funding you need for your small business.

Number 1: Collateral

Collateral represents what you intend to put down to secure the loan amount, such as a car or a house. Loans backed by collateral are secured loans, protecting the lender if you default. They’re not so secure for borrowers because if you default, the lender can seize collateral. However, interest rates for secured loans tend to be lower, saving you more money than other types of loans.

Number 2: Capital

It is essentially the total value of your assets minus your liabilities. The more money you can put down, the more confident your lender will be regarding your ability to repay. Your chances of getting approved go up as the capital increases.

Number 3: Conditions

The conditions of your loan include factors such as amount, interest rate, and the length of the loan. Take a look at the interest rate. With small businesses specifically, this can genuinely impact what type of loan you get and whether or not you even opt to get a loan in the first place. Term conditions can also apply to factors that characterize you and your business. For instance, do you have a lengthy credit history? If not, coming up with more money to put down and more collateral can help get you approved.

Number 4: Capacity

Capacity refers to your ability to repay the loan you get. So before filling out an application, take a good long look at your business finances to see where you stand to ensure you don’t bite off more than you can chew. Most banks like to see a debt-to-income ratio of 35% or less. So be sure you get your debt handled before applying for additional financing.

Number 5: Character

Lenders want to know that they are lending to an honest, transparent company that services its clients well. Banks can get an idea of who you are and what your firm represents by considering your FICO score, customer reviews, and risk view reports. Some of the critical things lenders weigh when assessing your company’s character are a FICO score of at least 550, payment history, any collections/liens, and years in business. Maintaining a good credit score can certainly help with character.

It’s all about risk. The risker your company seems, the less willing banks will be to fund you.

First Union Lending is Ready to Help You!

First Union Lending offers numerous financing programs designed with small businesses in mind. Our business loans are fast and flexible, with financing options ranging from $5,000 to $2 million.

We have the funds to help!

Call today to learn more about our various financing solutions to help your business grow and become successful.