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Banks want to know how you fit into the 5 C's of credit

Banks look at these 5 C's to help determine the creditworthiness of the business that's asking for financing. How does your business stack up?


Does your business have the financial capacity to support debt and expenses? Typically a business needs to have $1.25 of income to support every $1 of debt service. The extra $0.25 provides a cushion for your business to absorb unexpected expenses or a downturn in the economy.


Your business owns capital assets such as cash and equipment; is there enough to help support the financing you want? You and others may have invested capital in your business; how much? The answers say a lot about whether the business is one in which the bank wants to invest.


Accounts receivable, inventory, cash, equipment and commercial real estate are all forms of
collateral that banks leverage to secure loans. In addition to looking at the value of your collateral, the bank will consider any existing debt you may still owe on that collateral.


The state of the economy, trends in your industry and pending legislation relative to your business are all conditions that are considered by banks. These types of factors—often out of your control—may affect your ability to make payments.


Work experience, experience in your industry and personal credit history are all character traits banks will consider. Your personal integrity and good standing—and the integrity and standing of those closely tied to the success of the business—are critically important.

Plus one more

In addition to these 5 C's, there’s one more C that can make a world of difference: communication. Your willingness to communicate openly with your banker and your other advisors about the opportunities and challenges your business faces is key to a productive financial partnership.

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