I have heard many people say that banks are just not lending anymore. Some say the rules are so constricting that very few people can actually get a loan. While the economy has created an atmosphere of cautious lending, we are in the business to lend money and we do our best to meet our customers needs without putting undue risk on our bank or on them.
When assessing the risk of any loan, we use the 5 C’s of credit as a filter for determining credit risk. The 5C’s are Character, Capacity, Collateral, Capital and Conditions.
Character is your willingness to pay the proposed debt. A large part of this is your credit history. This will show how you have handled you finances in the past. Even if you are looking at a business loan, we look at how you handle your personal finances. How you handle your own money is a large indicator of how you will handle the finances of a business.
Capacity is your ability to support the debt. For this, we are looking for documented sources of income or cash flow to make the proposed payments. We analyze past tax returns to give us an indication of whether the necessary income is actually there and if the income can be sustained.
Collateral is the ability to pay the debt through liquidation, if the projected income stream does not occur as planned. For many types of business loans, we are looking for additional personal property to be offered as collateral. Depending on what is offered as collateral, we will attach different percentages of the debt to different types of collateral. In all cases, we are looking to cover 100% of the debt with appropriate collateral.
Capital is your reserve supply of money and equity including your net worth. When in business or starting a business, there are almost always unforeseen or unexpected expenses that come up over the course of time. Having the ability to cover some or most of these is essential. Adequate capital can also carry you through slower cycles of your business.
Conditions are the general business conditions that exist in your market place. Is there room enough in the economy for your business? Do you offer a special niche that is yet to be filled, or are you one of many companies doing the same thing? Since the economy is not very strong right now, you will have to show more strength in the 4 other areas (character, capacity, collateral and capital) to overcome the weakness of the current market place.
Even in the midst of our current economic climate there are loan opportunities for those who are prepared and can show strength in these 5 important areas. If you are planning a business expansion or a start-up rate yourself in these 5 areas before applying for your loan. Or, if you’d like to talk through your eligibility with one of our friendly loan officers, we’d welcome the conversation. Contact us through our website or give us a call at: 715.359.4231.