(NNPA)—Myths and misconceptions about the reason banks decline loans and the rate at which this happens are as common today as ever. As a banker, it’s my goal to bring clarity to the process, and explain what it takes for a business to get a loan and why a loan application may be declined.
Let me share a few credit basics small business owners should know before applying for a loan that may make the loan review process easier to understand.
For a banker, evaluating a credit application means reviewing the five C’s of credit: credit history, collateral, capital, conditions and capacity. You may have heard of these five general areas that help determine whether a business loan will be approved. Yet here are five things you may not know about the five C’s:
Did you know both business and personal credit history are important when pursuing business credit, particularly smaller loans? Looking at credit history helps us answer the question: How has the borrower handled credit obligations? Both business and personal credit are relevant. On the personal side, a lender will look at the business owner’s history of credit management including FICO score and details of their credit record. A lender also will want to know whether the business applying for credit has paid suppliers and other business obligations in a timely manner, including those to other financial institutions.
About Post Author
