Granting a business loan is critical and the bankers wish to get answers to a series of questions before granting the loans. People aspiring for help from the bankers for their small businesses should actually think like a banker and provide all the critical information required for the proper evaluation of their financial health and creditworthiness. The evaluation is done on the basis of the data provided and fall under categories which can be summed up as the six “C’s” for acquiring a business loan. The C’s provide a proper structure to the bankers for the evaluation of financial and non-financial information provided by you to analyze the picture of your business’s financial health and future prospects.
To sanction your loan request, the business bankers use six crucial aspects known as the six “C’s”. They include Character, Conditions, Capacity, Collateral, Capital and Cash flow. A careful preparation for the anticipated questions portrays an effective presentation of the business story and boosts the chances of loan approval.
1. Character- The prime thing that the loan officers wish to measure while reviewing a proposal is the evidence of your trustworthiness. A history with lack of integrity can lead to loan rejection. The bankers rely on your credit history and evaluate your repayments and relations with other obligations. Your commitment and relations with other loan providers can greatly influence the loan approval. The credit history has a major influence on the credit future. So it is better to be prepared for questions on the related fields. Effective business plan and clean references are the keys.
2. Capacity- Capacity is the borrower’s ability to respond to significant changes in business and cope up successfully. Business funding resources avoid mismanaged businesses and wish to have a detailed knowledge of the professional background, previous business experience, education and success levels of the business owner. People with less experience can improve the chances of loan approval by becoming a franchisee of an established business or by associating with someone with more experience. Capacity may also mean the ability to repay the loan.
3. Conditions- The nature of the loan request affect the result of the application. The business funding resources would wish to know about the amount being requested, the duration for which it is needed and the purpose for which it will be used. Also, the external factors which might affect the company’s health and success, the awareness of the management about all the factors and the preparations in response, account for the sanctioning of loans.
4. Capital- The funding resources wish to know your ability to tide over severe business conditions. The financial resources available with you to cope with the downturn or economic storm decide the rate of approval.
5. Collateral- Collateral is something that is offered to back a loan. The funding resources would like to know about the alternative sources of repayment available in case of failure of repayment by the borrower. The financial status of the collateral source is evaluated and the bankers may also inspect the equipment and inventory of the firm to have knowledge of other creditors having claims on the same collateral.
6. Cash Flow- This involves a study on the amount of cash generated by the business. Whether the cash is enough to support the business and the steps taken to manage cash flow are two important criteria taken into account. The generation of cash by the company, source of the cash generated, use of the cash generated and its outflow are the other important aspects considered by the loan officers.
A proper planning of business and preparation for the questions related to the above fields can give you an advantage over other loan seekers.
