The 4 C's of Getting a Business Loan
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The 4 C’s of Getting a Business Loan

You’re probably already aware that your credit score plays an important role in determining your eligibility to obtain a business loan or line of credit.

However, what most don’t know is what specific factors lenders look for within that overarching category.

When determining your eligibility for a loan, lenders look for what are called the ‘4 C’s of credit’ and, in fact, they stretch beyond just your credit score.

The number and type of factors vary somewhat depending on the lender, however, the four C’s of credit were created to help simplify and clarify the loan process for small business owners looking to obtain a loan.

The 4 C’s of Credit

Collateral

Typically appearing in the form of property or other physical assets, collateral is any asset a borrower can offer to secure a loan.

If the borrower defaults on the loan, the assets they used as collateral can be seized. Many small business owners are wary of secured loans because of this reason as they require hard collateral such as this.

Fortunately, unsecured business loans often don’t require collateral, and if they do, it’s a form of ‘limited’ collateral such as a portion of business sales which isn’t required to be paid back if you go out of business, meaning the risks are much lower.

Capital

Capital refers to any business asset that can be sold to make loan payments. This includes available money and cash savings, investments, properties with equity, and other assets that you could sell or use to quickly obtain cash.

If business drops off and you’re unable to pay your loan payments for a time, lenders want to see that you have liquidity to cash out on so you can continue to make payments on time.

Capacity

Capacity refers to your business’ ability to make the revenue needed to pay back a loan.

Lenders don’t just want to see that you have assets you can use to pay off a loan (or which they can secure to do so), they want to see a history of being able to make regular payments regardless of those assets.

Character

The final ‘C’ in the 4 C’s of credit, lenders determine character by reviewing the borrower’s personal credit history and calculating several factors together.

Factors taken into account include:

  • Your total amount of debt
  • Delinquent accounts
  • Available credit
  • And whether you make payments on time

If you’re in need of a business loan but don’t believe you can satisfy all four C’s of credit, don’t worry, there are several other options available.

At Excel Capital, we provide a variety of financial solutions which we can offer even if you have bad credit.

Click here to complete our short application or visit our Solutions page to get in touch with one of our financial specialists to see how we can help.

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