When trying to get capital for your business, it is wise to consider (and remember) the 6 C’s of Credit. You can find this list in many different places, with a few different C’s traded in and out. Either way, the concepts are all roughly similar.
Loans to small businesses really equate to personal loans. When applying, your personal credit history and business credit history will be reviewed and taken into consideration. Your past financial success (or failure) is the biggest determinant of your character to banks.
This is the amount of debt load your business can handle. The ratio used to justify this is usually the debt-to-net-worth ratio. A high debt/net ration is not considered as credit-worthy as a low debt/net ratio.
This equates to environment. How are the economic conditions? If a bank is consider about a recession, they aren’t as likely to extend credit.
You should know this term. This is a secondary option for repaying credit is a loan is defaulted. This is for the protection and comfort of the bank. It’s not safe for the companies to extend credit when there is no backup payment option.
This is where a solid and detailed business plan comes in handy. How sure-fire is your business model? Is the market highly-researched with a high chance for success? This plan will help you answer your banker’s questions without hesitation.
This just means your bankers wants you to have a backup plan. This can be rolled-in with a business plan, really. Do you have a worst-case scenario plan in case your ideal model doesn’t work out. A contingency plan will help curb panic when Murphy’s Law inevitably sets in.