Learning the 5 C’s are a must for every Entrepreneur
For a while now the stock market has been throwing up red flags to investors of a turbulent future. However, at the same time all three major U.S. stock markets – the Dow, S&P 500, and Nasdaq – reached all-time highs in August 2016. With uncertainties like these in the stock market, many lenders are likely to be more hesitant and careful about who they provide loans to, meaning it may be getting harder to find the business financing you need. PMF Bancorp still has business loan programs, invoice factoring financing, inventory, and trade financing available to small businesses.
Here are tips from PMF to help you land your next loan…understanding the 5 C’s of credit will help you get your next loan approved:
- Character | The first C, Character, refers to your reputation as a borrower. As a business owner, investors measure your character based on a number of factors. This traditionally includes your business credit report, and sometimes your personal credit score, which is measured based on your history of how you handled loans and other credit tools. Other factors that may be considered include your experience in your industry and the impression you made on the lender. All of these are combined to determine if you are to be considered a trustworthy recipient.
- Capacity | Possibly one of the most important factors to a lender, they want to know what your Capacity is to pay back your loan. Financial data plays a crucial role in measuring this factor. Using well-thought out forecasts and previous P&L statements, you need to prove that you will have the cash flow to repay the loan as agreed.
Click here to Continue… - Capital | Lenders want to know that you have skin in the game and are committed to successfully running a business. One of the best ways to show this is through your own personal investment in the company. The more money you have contributed to making your operation a success, the more committed you will appear.
- Collateral | Lending money is always a risk. One way lenders protect themselves from non-payment is with collateral. Collateral is an asset that can be taken over by the lender should you be incapable of repaying your loan. While lenders really don’t want your collateral, it represents a further way to tie your commitment to honoring your loan.
- Conditions | The final C, Conditions, refers to how you intend to use the money being loaned. The purposes of the loan helps lenders determine the riskiness and other details of the loan such as interest rates, minimum payments, and repayment date. If the conditions are favorable, you are more likely to receive a lower interest rate.
Before you submit a request for funding with a conventional loan, invoice factoring financing, account receivable financing, or a small business loan may be other options to consider. Tough times may be ahead, and the possibility of more turbulent financial markets will make many lenders more cautious. By reviewing the 5 C’s of credit, you may be able to make yourself appear to be a more attractive to the lender of your choice and be able to secure the business financing you need.
