What Do Bankers Look For When Reviewing A Business Loan Application?

Applying for a business loan these days can be an intimidating affair these days. Everything you read in the media suggests getting funding is difficult. To pull it off, it often helps if you understand what the banks are looking for when evaluating an application.

Bankers follow the Five C rule when it comes to reviewing a bank loan application. The five C’s stand for Capacity, Character, Collateral, Conditions and Capital. Each one of them is explained in brief detail below.

Capacity – Bankers will analyze the financial statements of your company to evaluate your capacity to pay back the loan. Items of interest will be your cash flow and working capital. They will want to make sure that you first have enough cash to run the business smoothly and will also want to know if the monthly repayments on the loan are something that you will be able to afford easily.

Character – Bankers look at things that are beyond the financial numbers. They will want to know about your personal history or reputation in the town and your personal credit history. They will also be greatly interested in your application if you are an existing customer with the bank. It might be a good idea to being a relationship with a bank before you approach them for a loan as banks are usually very wary about people who walk into a particular bank for the first time, requesting a loan straightaway.

Collateral – You might already know this but your cause of getting a loan will be greatly strengthened with collateral such as commercial real estate or other property.

Capital – The bank will be interested in the existing capital structure of your business. They will see if you have a vested interest in your business. In other words, they would ideally want to see if you have personally invested money in your business. If you haven’t, they will not feel too confident about financing your business in which you don’t have a stake yourself.

Conditions – Lastly, the bank will look at your business from an industry perspective to gauge your level of competitiveness. If your business compares poorly to competitors, they might deny your application. On the flip side, if they see your business performing exceptionally well when compared to competitors, you will not only get a quick approval, you might also get very good terms on your business loan.

The five C’s may seem a bit arbitrary, but that is the way the dice roll in commercial finance. Make sure you cater your application to answer all five and you’ll be on your way to getting funding.

Thomas Ajava helps clients obtain commercial finance loans at CommercialFinanceLoans.com.