5 Things Lenders Look at When Financing

No matter what the economy is doing, lenders are focused on the five C’s of credit: your character, your capacity to repay, your capital, the conditions of the request, and your collateral.

Your lender will ask you specific questions about your request for financing; the detail required will depend on whether you have an existing relationship with the lender or whether you’re a brand new customer. Here’s an overview of what they’re looking for:

1. Character
Do you have the experience, background and integrity to make your proposal successful? Are you motivated and committed to the project that you’re proposing? Do you have a strong work ethic and desire to achieve?

2. Capacity
Will you have the cash flow to make the payments on your debt? Do you have detailed financial statements (lenders typically ask for three years of income tax returns)? Does the repayment structure of the loan match your income stream? What are your primary and secondary sources of repayment?

3. Capital
What is your net worth? Do you have cash of your own to bring to this deal, or does it all have to be financed? Is there sufficient strength in your balance sheet to support the size and scale of your request?

4. Conditions
What are the market conditions, both for your industry and for the general economy? If it’s a new venture, have you looked at your competition? Your location? Your business plan? What is your sales and marketing plan for your product?

5. Collateral
What assets do you currently own to help secure your debt?

A well-written business plan will answer many of the above questions. You can find sample business plans from your local extension office, or call your local loan officer for help finding resources.

Look at your lender as a partner in your operation, and give them as much information as you can so that you can work together to create a financial package that suits your needs and helps you succeed in your venture.

Courtesy of MidAtlantic Farm Credit

Editor’s Note: This article was originally published in the April 2009 issue titled Can You Get Financing? by Curt Harler.

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