For the next few minutes, let’s say that you’re a lender. Three business-loan applications land on your desk one afternoon. Francis has one. Martha’s Another One. And the third is from a local woman with the hope of expanding her day-spa business.
Like many lenders, you begin to judge each application by the parameters known in your industry as The Five C’s: Cash Flow, Capital, Conditions, Collateral, and Character when it comes to deciding to fund or not to fund. In several ways, for decades, those five things were part of the secret of How to Get a Business Loan.
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The Five C’s
Let’s say the three applicants in the first four groups are all doing well. Martha’s latest line of self-mixing muffin tins, for instance, has greatly improved her cash flow. With the House as collateral, Francis appears in that category to be in decent condition. And the day-spa owner recently put a large amount of capital into her business, her own savings, which says a lot about her commitment to its success from your point of view. As far as economic conditions are concerned, you do not foresee any stumbling blocks (political, environmental, or geographical) that could impact the capacity of any of the applicants to make good on the new debt they hope to take on.
But one more category still has to be considered: Character.
The Question of Character in How to Get a Business Loan
The weight given to the character of an applicant may range from lender to lender. And it also depends, sadly, on something as arbitrary as, say, a wimpy handshake. When it comes to character, you want to take a number of criteria into account, including:
- Involvement in the community
- Overall stability
- Any and all criminal activity in the past
- A criminal record as a possible deal-breaker
- Applicant’s success prior to this business endeavor
- Credit history
- Referrals from respected community members
- References from professionals – accountants, lawyers, business people – familiar with the applicant’s business goals
Francis quickly passes the character test with not so much as a speeding ticket to his credit. So does Ms.Day Spa after her college roommate’s wedding, considering the misdemeanor on her record for “public drunkenness”; it was a one-time indiscretion years earlier since then, covered by an abundance of positive factors.
But you plan to turn her down due to Martha’s felony record. She would no doubt reapply with other creditors, hoping they won’t run a background check as you did. But if that lender asks about it, experts have wisely advised her on how to get a business loan in order to be truthful, forthcoming, and fully open. That is a strategy that can go a long way with certain lenders, all things considered.
Judge For Yourself
It’s your responsibility as a lender to determine whether a borrower would be a successful investment or not. Can their loan payments be made on time? Is their company going to survive? Can they be trusted with the stuff they say they will use the money for? And while in a funding decision all the Five C’s come into play, it could be the character that eventually tips the scales.
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