When a bank starts to tighten lending to small business, it looks to reduce the risk of issuing a small business loan. A provider making a loan approval will review a small business loan in the context of the five C`s that are:
- Character – refers to a borrower`s reputation to evaluate how trustworthy he/she is to repay.
- Capacity – is monthly and annual revenues.
- Capital – business owner investment into his/her own company. It shows confidence in the business and the ability to repay a debt.
- Collateral – anything, such as property or large assets, that secures and guarantees a loan.
- Credit Score – is go-no-go measure for most lenders.