There are many reasons why small businesses need funding such as start-up costs, equipment, inventory, staffing, among many other expenses. And there are many reasons the thought of securing funding seems discouraging and daunting.

Most lending institutions use the five C’s of lending to evaluate the strength of an application and understanding these five C’s will help you anticipate and address what’s needed to secure a business loan.

Character is a combination of your credit history, your training and work history, and any proven experience you have at running a business. It’s all part of ensuring that you are set up for success in business – not just loan repayment!

Credit, also referred to as your credit score, credit report or credit history, is a critical component for lenders. If you are a start-up, your business may not have credit history; therefore, reviewing your personal credit would be necessary.

Capacity refers to your ability to take on and repay debt based on the earning potential and cash flow of the business. Lenders look at your business plan very carefully to determine the strength and marketability of your idea as well as the viability of the business. When assessing a loan request, the conditions of the market in which you are planning to operate your business need to be assessed. Is the industry mature, or emerging? What are the current political, environmental, social, and technological issues affecting the industry?

Capital includes your personal and corporate net worth, the “sweat” and real equity you have invested in the business and your ability to access other financial reserves. Do you have adequate capital to grow your business and to weather any unexpected emergencies or setbacks.

Collateral, known as security against a loan, are assets possessed by your business or you personally. Often the management team, business capacity, market conditions, and cash flow of a business are looked at to understand the ability for your business to succeed.

Your chances of obtaining a loan depends upon how you are assessed in each of these areas. By becoming familiar with these five criteria, you can ensure that your business plan addresses all the essential points, and that you are prepared to answer any questions.

Jolynn Green is Executive Director of Community Futures Central Island. You can count on us for sound practical advice, personalized business coaching and tailored financing that supports your business goals. Jolynn can be reached at or 250-591-7499.