Let’s imagine you want to go to a lender to borrow money so you can grow your business. Your credit score is a key component in how lenders will assess your eligibility for a loan, but it’s not the only factor. Before you approach a lender, we recommend you get familiar with the following factors: credit, liquidity, collateral, capital, and what lenders refer to as your character.
Lenders look at five primary factors:
- Credit: How likely are you to make payments on time and pay off the loan?
- Conditions: Do you have assets such as stocks, mutual funds, or accounts receivable that you can turn into cash quickly to pay back your loan?
- Collateral: Do you have assets such as stocks, mutual funds, or accounts receivable that you can turn into cash quickly to pay back your loan? You might be asked to provide something of value such as equipment or inventory to back your loan.
- Capital: What is your income and available cash? Where is it coming from? How much can you afford to pay monthly (capacity)?
- Character: How responsible have you been with your past debts? Do you have any late payments or collections?