A Banker's Perspective on Small Business Loans - Your Banker, Your "Capital" and Creditworthiness

If you learn to think like a banker, you certainly get more help for small business from your bank. In decades of proven approaches to teaching bankers evaluating applications for loans to businesses, I have shaped the thinking of bankers, many small businesses. Six C's Lead I teach the creditworthiness of commercial loan officers to consider the "Six C of commercial credit - character, capacity, condition, Capital, Collateral, and the cash flow - before making a loan. These criteria help bankers to be more thorough in their examination of financial data and business from their borrowers, and ensure that critical elements are not overlooked.



When you can go inside the mind of your bank to anticipate the kind of questions you can get around to each of these elements, you do a better job of telling the story of your own individual business, increasing your chance of obtaining funding you need. Capital "capital" refers to your ability to withstand a fall, both the general economy, industry, the borrower or the borrower's assets in particular. It focuses on financial means to cope with changes in business conditions. The banker is trying to find out what financial resources the borrower has to overcome the tight and emerge in good health, on the other side.



Which leads to questions like these, when you come to apply for a loan: Are the borrower's combined debt and equity needed to maintain operations for a reasonable period of time in the face of sharply reduced sales and a marked increase in spending? The borrower has exhausted or nearly exhausted, access to credit and equity? Or are there sources of credit and investment, the borrower can tap into a crisis? Is the property in a location, and willing to reduce their compensation for the good of society, during a difficult section? The company regularly build equity / equity owners' through retained earnings? Amounts are taken by the company (salary, dividends, fringe benefits, etc.



) adequate and sustainable? The direction explicitly speak, and manage the capital to ensure their ability to handle a sudden downturn in their fortunes? The property has the personal resources (surety) to support the activity, if necessary? is the capital of the business to serve the owner or the owner's equity in the service of business? Do not Try This At Home! These are difficult questions, and does not help your case to be fumbling for the answers when you are sitting on the desk by the banker.



Take the time to practice on these issues. Sit with a colleague or even someone who knows little about your industry and try until you can tell your story smoothly and with confidence. With thorough preparation, you can show your banker that you and your business have the capital to argue that the loan has come after.