What We Look for When Lending to a Business

A commercial loan can be used for helping to start or grow a business. Many people looking to apply for their first loan often wonder, what do banks look for when lending to a business? While we love helping the businesses in our community thrive and succeed, we also need to make sure we are investing wisely.

“There are a lot of factors we will consider when it comes to deciding to offer a commercial loan,” said Michael J. Quink, executive vice president, senior commercial officer for Cornerstone Bank. “These can be broken down into the five ‘C’s’ of credit: capacity, capital, collateral, conditions and character. Through weighing all of these factors, we can determine the risk to the bank of offering a loan.”

The Five “C's” of Credit

Familiarizing yourself with these considerations can help you get a head start when presenting yourself to lenders as a potential borrower.

  1. Capacity. This may be the most important of all the factors as it looks into the ability of your business to repay loans. Be sure your business plan demonstrates steps for you to repay any loans you would have. We will take a hard look at the numbers here regarding revenue, expenses and cash flow to determine potential repayment timelines.
  2. Capital. The money put towards starting a business is called capital. It is unlikely you’ll be able to borrow 100 percent of your startup costs, so to get a loan you must also show that you can make an investment in your own business first.
  3. Collateral. We will look for a secondary source of repayment for the loan should the payments stop, so we can still recover what is owed through collateral. This could be equipment, vehicles, or inventory.
  4. Conditions. Be prepared to demonstrate the need for your business as well as your experience in the industry or running a business. This can also be affected by factors outside of your control such as an economic downturn.
  5. Character. This investigates who you are as a borrower rather than your business. We’ll look at your business experience as well as personal credit history. How you handle your personal credit is generally an indicator of how you will manage your business credit.

These five factors provide an objective framework that we can use to determine your eligibility for a loan.

How We Can Help

With expertise in many lines of commercial lending, we can help provide the influx of funding your business needs to keep growing. Contact us today to get started.