The 5 C’s of Credit: What You Should Know Before You Ask a Bank for a Loan
Business owners who are passionate about their ideas find it very disheartening to learn that their own bank isn’t as enthusiastic as they are. Before you abandon all hope, there are a few concepts that will help you position your business with the bank.
Business funding develops along a continuum; therefore, before you get started, you should have short-term and long-term plans for the capitalization of your business.
The typical funding sources for startups:
- family and friends;
- personal savings;
- personal credit cards;
- and home equity lines of credit.
After using these close, personal opportunities, you may move on to crowdfunding and angel investors. Perhaps you might also consider an internet loan.
These sources are expensive and can be emotional as well. You will be using your personal assets or those of your family. You are likely paying high costs and fees through credit cards. If you use crowdfunding and angel investors, you will most likely have to give up some equity in the business. So, you would like to find more traditional ways to fund your business.
You now feel ready to dip that first toe into the waters of commercial banking. But before you entice a bank to extend credit to you, it is important for you to have a good understanding of how banks evaluate loan requests. The criteria the banks use are known as the 5C’s of Credit.
We will be going into depth on each of these components in upcoming blogs. You’ll get a banker’s view of how these criteria are used to help decide whether you will get a loan. You’ll also get a few hints about how you can incorporate them in your request for funding.
Stay tuned for article #2 in this series!
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