5 C’s of Business Lending
By Kent Landacre
Neighbors FCU Assistant Vice President of Commercial Lending, Kent Landrace, wants to let you know about his 5 C’s of Business Lending. To learn more about what Neighbors can offer businesses large and small give Kent a call at 225-819-5792.
Business lenders take into account a variety of variables when underwriting a business loan request. The weight placed on these factors can vary based on the type of business and the amount of money requested. However, all business loan applications are reviewed based on the five C’s of business lending.
The Five Cs
- Capacity: The borrower’s ability to make the scheduled payment. The borrower’s financial history is a good indicator of their ability to repay outstanding debt. The underwriter will consider the cash flow of the borrower, the time of the repayment, and the probability of successful repayment of the loan. Income amount, stability, and type of income may all be considered.
- Character: The commitment that the borrower feels to repay the lender. The underwriter will investigate the borrower’s credit history and rely on statements that the borrower makes during the loan interview process.
- Collateral: The form of security for the lender. If a borrower defaults on the loan, then the lender will take possession of the collateral to help offset the loan. A lender will normally want to match the useful life of the asset that is pledged as collateral.
- Conditions: The intended purpose of the loan. The underwriter will want to know how the borrower plans to use the money. They will consider the loan’s purpose such as if it will be used to purchase a vehicle or other uses. Other factors, like environmental and economic conditions, may also be considered.
- Capital: The repayment sources available. While business income is expected to be the primary source of repayment, capital represents savings, investments, and other assets that can assist in repaying the loan.