All lenders are not made equal. Each lender looks for different things when deciding to lend money to businesses. Chase has a different lending criteria from Citibank and Citibank from an alternative lender like Accion.
There is something called the 5 c’s of credit the most lenders take into consideration when deciding who to lend money to. Depending on the lender and their criteria some of the C’s will be more important than others. Before applying for a loan at any institution, find out what they are looking for.
What are the 5 c’s of credit:
Credit: What is the personal credit score of the owners of the business. If someone owns 20% or more of the business, the lender will more then likely want to pull their credit report. Lenders want to see that you have been responsible paying back your personal debt. They believe it is a good indication of how you will handle your business debt. Your credit reports and scores are important. Credit scores of 650 or more are favorable.
Cash flow / Capacity: Lenders want to see that you have (current and/or projected) cash to pay back the loan. Do you have the ability to take on debt and pay it back? If I give you a loan of $10K with a monthly payment of $500 can you prove to me that you can pay that back on a monthly basis?
Collateral/Cosigner: Do you have any assets (i.e. real estate, stocks, bonds, jewelry, paintings) that a lender can take control of if you are unable to pay back your loan for whatever reason. If you don’t have collateral, can you have someone that can cosign the loan? A cosigner is someone who will be responsible for the loan if you are unable to repay it for whatever reason.
Capital: How much money have you invested in your business? How much are you willing to invest? Most lenders do not want to lend you 100% of the cost for your business. They want to see that you have some skin in the game.
Character: Are you trustworthy? Are you a reliable person? Lenders want to lend money to business owners that are honest and that have integrity.