Know the 6 Cs when financing a business.

Six Cs of Credit.

1. Character
2. Cash Flow
3. Capacity
4. Conditions
5. Capital
6. Collateral


If you are considering borrowing to expand or start a business, it is wise to be aware of the way a banker looks at your application. The six Cs are the guideline that the banker uses to justify to his committee or underwriters that the loan to you is a good use of their money.
The biggest factor is usually character. They want to know your reputation for responsibility in paying back loans. In other words, this is your credit score. But beyond that, they will want to know your experience at the business you are operating and how sound your business plan is. Therefore,it is important that you have a good relationship with someone at your bank. There needs to be a person you can call to discuss your needs and options. If you go to the bank and constantly see different faces, then you need a new bank. I tell people that having that personal contact is much more important than saving a few dollars on fees or shopping for the absolute lowest interest rate.
Cash flow is the next most important factor. They want to see sound projections indicating enough monthly income to operate and still cover the debt repayment.
Capacity to earn is also important. This has to do with the validity of your idea. Is there a need for your product or service? Conditions are the external factors that may have an influence on your business idea. Is the location right? Are there zoning issues? What is the short term and long term economy like?
Capital has to do with your equity position in the operation. If you are not in a position to risk any of your own cash, then the banker will have serious doubts.
Collateral is considered, but is not as important as the other factors. Banks are not pawn shops and have no interest in obtaining property. It is expensive to take the collateral and reselling it is complicated, so is a last resort.
Knowing these six Cs will help you prepare a proper application for your banker. It will also help you determine with knowledge, whether you really want to commit to the obligation.

Larry Steinborn
Business Depot
239-433-1343