‘Twas the 5 C’s of credit and all around town, people were wondering why the bank had turned them down! They had never heard these words before, and were surprised when the banker said they couldn’t lend them anymore.
Character Is the first thing the bank will review. What is your credit rating and past history too? Do you have any bills that you have been paying late? How about a student loan that you forgate? Check your credit report and score before going, so you will take care of any issues and be all knowing.
Capital Is the second thing banks like to see. They’ll ask, "Do you have any skin in the game?" Yes-siree! The underwriter’s will want you to put around 20% down, just to make sure you will not flee the town.
Collateral Is the third area banks like to have. Do you own anything of value that they can grab? It needs to cover the loan amount in full; and property, a CD or real estate is good.
Capacity Is the fourth and again, you may wonder. The bank will want to see that the business will be profitable and not go under. All should be covered, including expenses, payroll, and the loan too. Be prepared to provide financial history and projections for years 1 and 2. That will make it easier for a banker to say "I do"!
Conditions Is last, and what does that mean? Well, sir, it’s just one little thing. How has the economy been fairing these days? Regulators will give the bank’s portfolio a gaze. They want to make sure that the loan will be paid, and this has been making business people a little plagued.
With all of these C’s is there anything else? Yes, you will need to personally guarantee the loan itself.
That is the story, and if you want to borrow some funds, make sure you have covered every single one!
Happy New Year!
