The 5 C's of Credit: A Borrower's Guide from Business Solutions Consulting

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When assessing the ability to repay a loan or credit line, lenders consider various factors such as revenue, expenses, cash flow, repayment schedule, business and personal credit history, and credit scores provided by Equifax, Experian, and TransUnion. The management of personal credit often mirrors that of business credit. The debt-to-income ratio (DTI) is used to compare the amount of outstanding debt to income, with a lower DTI suggesting improved liquidity and a higher probability of making timely payments.

1. Capital*

   To get a line of credit, you’ll need to show that you have capital—some of your own money or money from partners—that you can put toward startup or acquisition costs. Think of it as a down payment to show you’re serious and capable.  

   
   

2. Collateral*

   If you fall behind on loan payments, financial institutions want to make sure you have collateral, or another source of repayment for the loan. Your loan application should include real estate or other things that could be sold if you fall behind on debt payments.

   
   

3. Conditions*

   Lenders want to be sure there’s a market for your business. Make sure your business plan proves that you will be successful based on economic conditions, competition, industry type and your history as a small business owner.

   
   

4. Character*

   This includes your education history, business background and personal credit history. Include any references or other information about your financial situation. It helps if you and your staff have a good reputation in your industry.

   
   

The 5 Cs Checklist

Before you make your a request, ask yourself these questions to make sure you’ve addressed all 5 Cs in your application and business plan:

• Is my business following all local, state and federal laws and regulations?

• Have I studied my competition and industry trends?

• Am I providing a needed product or service?

• Am I committed to making my business succeed?

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