It is much easier to get approval for business funding if you know what the lender is looking for before you apply.
That way, you can be certain you meet the requirements before you even apply. This helps ensure a greater chance of approval. Lenders are often looking at 5 main points of your business to determine your approval. These 5 points are commonly known in the lending industry as the 5 “C”s of lending. Some sources can approve you for funding if you have only one of these C’s. But most conventional lenders want to see all five in your business before approving you.
The first “C” is cash flow. And sorry all of my party animals... not the cash flow coming out of one of these. While this seem like a legit good time. let's save the money gun for later!
Lenders want to lend money to a business that has already proven it can succeed. This is to show if your business has regular money coming in, or cash flow. If you do, you have one of the main components lenders want to see before they will agree to lend money to your business. The lender will track this based on your bank statements. This is what a lender is looking for when they ask for your bank statements.
The second “C” is collateral. Lenders want to see your business has collateral equal to or more than the amount you want to borrow. Your business can have many types of collateral. This includes equipment, credit card sales, inventory, account receivables, purchase orders, and commercial real estate. It also includes other types of collateral that a lender will find acceptable.
The third “C” lenders are looking for is good personal credit. Lenders will often look at your consumer credit profile itself to see if you have paid your bills as agreed. And they want to be sure that there are no large outstanding debts where some could file a lawsuit against you. If you have credit issues they review your credit to see how bad and how recent those issues are. Many lenders will still agree to lend your company business money if you had credit issues in the past. But this is as long as they were not within the last 12 – 24 months. Many lenders will agree to provide business funding if you have collections. But they will not when they are recent collections, or tax liens, or judgments.
The fourth “C” is business credit. Lenders will check the information the business credit reporting agencies have on you. They want to see good business credit scores and profiles built that show paid as agreed tradelines. Business credit reporting agencies might have information on you that you don’t even know about. So review your reports with Dun & Bradstreet, Experian, and Equifax. That way, you will know what lenders will see. To establish, build, and maintain your business credit, you can use our BEST SELLING Business Finance Suite.
The fifth “C” is a co-signer; that is, a personal guarantor. If your business or personal credit isn’t strong enough, some lenders will want a second signer. Often, this person will be liable for the debt, so they will be personally guaranteeing it. If the loan defaults, the personal guarantor will be liable and pursued for that debt. A good personal guarantor goes a long way to helping make up for a lack of business credit or having challenged personal credit. Some lenders will want to see only some of these 5 “C”s of Lending. Many conventional banks will actually prefer if you have 4 – 5.
Work on building your 5 “C”s for the best chance of getting funding approval. Stay funded, friends!