THE FIVE C'S OF CREDIT
The following are the things that lenders and investors are looking for
in a new business start-up. The presence of these "C's" will
reduce the risk to the lender or investor and increase the likelihood
of receiving the needed funding.
CHARACTER
The degree to which a borrower feels a moral obligation to pay his/her
debts, measured by the credit and payment history.
CAPACITY TO PAY
A subjective determination made by a lender based upon an analysis of
the borrower's financial statements and other information.
CAPITAL
The amount of capital in a business is equal to the total of capital from
debt and equity. Lenders prefer low debt-to-asset and debt-to-worth ratios
and high current ratios. These indicate financial stability.
COLLATERAL
An asset owned by the borrower, but promised to a lender against non-payment
of the loan. The amount of collateral varies from lender to lender. The
closer the collateral value is to the loan amount, the more comfortable
the lender will be that the loan will be repaid.
CONDITIONS
General economic, geographic and industry, conditions that affect your
ability to repay a loan. Are conditions favorable for your business venture
to survive and prosper.
SBA adds a sixth “C” of Credit:
CONFIDENCE
A successful borrower instills confidence in the lender by addressing
all the lender's concerns on the other Five C's. Their loan application
sends the message that the company is professional, with an honest reputation,
a good credit history, reasonable financial statements, good capitalization
and adequate collateral.
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