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 factor in how lenders will assess your eligibility for a loan, but it’s not the only one. Before you approach a lender, we recommend you get familiar with the 5 Cs: credit, conditions, collateral, capital, and what lenders refer to as your character. Lenders consider these 5 primary factors when determining whether to grant you a loan:
- Credit: How likely are you to make payments on time and pay off the loan?
- Conditions: Do you have experience in your industry? Are you ready to start this kind of business?
- Collateral: Do you have assets 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? What are your income sources? 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? This is typically determined by referring to your credit report