Borrowing tips for your business

Control cash flow

Businesses often want to know whether they’ll be able to borrow the funds they need. Lenders need to make loans that are eventually repaid, and they look at requests for signals that reduce their risk of not being repaid. As a business considering a loan, you’ll want to understand what signals and factors lenders tend to evaluate so you can assess your prospects of success. The level of risk that the lender is willing to accept, industry targets, and specific evaluation approaches may vary from one lender to the next, but you’ll have a good idea of where you stand when looking for funds.

What information are lenders looking for?

“Most lenders want to know if you’re likely to repay your loan, and there are several ways that lenders analyze the risks around repayment,” said Zachary Sink, small business lending product manager at Truist. “While each bank has its own process, most follow the principles of the 5 C’s.”

So how can you use the 5 C’s to improve your chances of getting a loan?

The 5 C’s to improve your chances of getting a loan.
What lenders want to see How it’s evaluated What you can do about it
Credit history Do you pay what you owe on a timely basis?
  • Business credit history
  • Personal credit history
  • Check your credit rating regularly and devise a plan to constantly improve it.
  • Pay your bills and make debt payments on time and in full.
Capacity Are your current sales enough to support paying off a loan?
  • Sales, expenses, profits
  • Tax returns/financial statements
  • Checking account history
  • Run a profitable business and understand your finances.
Capital Do you have enough equity or down payment for your business?
  • Business liquidity (checking, savings)
  • Personal liquidity
  • Equity in other property
  • Business/personal net worth
  • Plan to invest part of the total cost as a down payment, often 20%.
  • Pay off your debts as expected.
Conditions How will you use this loan considering your business’s risks, the industry environment, and current macroeconomic conditions?
  • Loan purpose
  • Business financial condition
  • Industry and economic outlook
  • Have a clear business need that leads to an economically positive outcome.
  • Create a backup plan to cover risks.
Collateral Do you have collateral that you can provide as security against your loan?
  • Assets purchased or refinanced to use as collateral
  • Other business or personal assets, net of existing loans
  • Business/personal credit history
  • Collateral is usually required on larger loans. More collateral can improve your loan terms.

When is the right time to apply for a loan?

Given the recent fluctuations in interest rates and inflation, many owners wonder if it’s the right time to apply for a business loan. While any loan depends on the business’s needs and ability to repay, the following considerations may assist in loan timing:

  1. If your business needs credit, reach out to a lender to apply for a loan. A lender will walk you through the application process and help you put together required information. If your request is declined, you have the right to ask the lender for a written statement of the specific reason(s) for your denial if you ask within 60 days of being notified of the creditor's decision.
  2. If your business hasn’t ever opened a credit account, consider applying for a credit card. This is often the first type of credit product that a small business will open.
  3. If your business doesn’t need credit right away – review the 5 C’s to make sure they are in order.

a.  Build a record of making payments on time. Update your cash flow planning and monthly payment reminders to include loan payment(s) and other regular obligations or put all your payments on automatic draft.

b.  Address any business issues or deficits that could keep you from securing credit.

c.  Build your track record of sales and profit growth to support future borrowing.

d.  Continue to build the equity value of your business—a strong balance sheet and capital structure position you for future financing.

Create your business borrowing profile.

“Before going through the process of applying for loans, first think through your needs and current business standing,” Sink said. “A business borrowing profile is a snapshot of your business and your funding needs.”

Completing the profile ensures you have a clear understanding of your business’s situation, reasons for borrowing, and plans for repayment. While most lenders won’t ask for this level of detail as part of a loan application, preparing the profile will help you articulate your request clearly.

This business borrowing profile is for your informational purposes only, and the information will neither be uploaded to an application, nor will it be considered an application for credit.

Are you ready to take your business to the next level?

Start by getting our Borrowing for Small Businesses Guidebook to learn more about small business lending. Call 877-279-3083 to talk with a small business banker or schedule a virtual or in-person appointment to find out how Truist can help you think about how borrowing can help your business.

This article is for informational purposes only. This content does not constitute business, legal, tax, accounting, financial, or investment advice. You’re encouraged to consult with competent legal, tax, accounting, financial, or investment professionals based on your specific credit needs and circumstances. We don’t make any warranties as to accuracy or completeness of this information. We don’t endorse any third-party companies, products, or services, if any, described herein. And we take no liability for your use of this information.

All loans subject to credit approval. Standard underwriting guidelines and credit policies apply.