I’m sure everyone has heard of the old saying that “it takes money to make money”. Well most businesses we want to start requires some level of start-up funding. If we don’t have the money ourselves or have investors, then we must find a lender. Lenders have different parameters in place to evaluate risk. It’s important to understand that these parameters are often different from lender to lender. Most lenders focus more attention on the 5 C’s:
- Capacity – Your ability to pay using your current debt to income ratio
- Capital – Your overall net worth
- Collateral – Assets that could be used as a guarantee against a loan
- Character – Your track record, how you’ve paid others, credit scores, etc.
- Conditions – The lending environment, market conditions, prime rates, etc.
Other requirements are considered based on the different loan products available. How long you’ve been in business plays a part as well as your financial projections and history with the business. They will also want to know how much you’ve already invested in your business.
It’s also good to be aware of the various types of lenders. Non-profit lenders aren’t usually deposit institutions and are often geared more towards small business needs. There’s also special financing on accounts receivables called Factoring. Its good to also be familiar with SBA loans and who offers them.
Photo attribution: Nick Youngson – link to – http://nyphotographic.com/