By Ty Kiisel –
Small business owners looking for a loan need to understand the way their creditworthiness is evaluated to put their best foot forward — understanding the 5 C’s of Credit can help. As a general rule, there are three questions for which lenders need the answers:
1. Can you repay a loan?
2. Will you repay a loan?
3. What will you do if something unexpected happens?
Lenders might not ask them this way, but today I’d like to share with you the 5 metrics many lenders use to judge your answers.
Generally speaking, lenders are pretty risk averse (although some have a higher risk tolerance than others). I remember an economics class I attended many years ago where the instructor made it a point to make sure we understood the test questions, and the answers, before a big test. Our grade depended on how well we answered the questions, not simply if we got the answers right. He wanted us to be prepared and learn.
It might be a stretch to compare my economics class with applying for a small business loan, but understanding what the banker (or any other lender) is looking for, and judging your loan application against, might make it easier to answer the questions well and get your loan application approved. (more…)