What do lenders look for when assessing a loan application?
Loan applications are evaluated based on the five C’s of credit: Character – Character and commitment of the principals/ borrowers/ company. Capacity – Includes both debt repayment ability (as evidenced by historical financials, cash flow projections and the credit history of company, principals, guarantors, co-signers) and managerial capabilities of owners and management team. Collateral – A pledge on business assets or personal properties to secure or back up the loan request Capital – The equity contribution or financial investment of the owners. This is usually 20% to 50% of the total project cost for start-ups. Conditions – Considers the competitive environment, any specific trends in the industry or the general economic conditions in which the business thrives.
