Have you decided to take the step of looking for financing for your small or medium-size business? Here are some strategies for applying for commercial credit1.
Finding financing for a small business is easier than you think. If you prepare and get organized to show that you know what’s needed and have the ability to meet the payments, you will be likely to succeed in getting it.
Demonstrate the 5 C’s of Commercial Credit
We’re not talking about academic grades. From the banker’s point of view, there is a formula known as the 5 C’s for obtaining a business loan. They are: capacity to pay, character, capital, collateral and conditions. The 5 C’s refer to attributes the financial institutions take into account when considering your application for credit. Learning them and complying with all of them will make your road a smoother one.
- Capacity to pay – This is the most important aspect. You must clearly show how you will repay the loan you are requesting. In that sense, your payment history as an individual is an excellent indicator.
- Character – Showing that you are reliable is essential, bring to the table your credentials, your preparation and your experience in the field. Also include information about your working team.
- Capital – Show your commitment and determination by assuming financial risk (investing your own money in the business). This is a good sign for the bank.
- Collateral or other guarantee – Show that you have a “plan B” for making the loan payments in case the business’ cash flow is not sufficient.
- Economic Conditions – No missteps. Understand that the banking officer will also analyze the economic environment and the conditions in the industry that could affect the business you propose to open.
These 5 C’s are demonstrated through your Commercial Credit Proposal, a document that serves as your letter of introduction to the institution and lays out everything from the amount of money you need to support your business to how you are going to make the payments. First, summarize the reason you are requesting financing and point out the characteristics that separate your business from the rest. Then, present yourself, show who you are and those who are supporting you. Provide a history of your business and your plans and include business references. Incorporate income statements and – in realistic terms – the expenses, benefits and cash flow statements for three years. Show your business and personal financial statements. Establish the amount you need and the terms for payment.
There are options – choose yours
There is a variety of commercial credit products: there are short-term and long-term loans with various terms that you should consider. Short-term loans are approximately one year, while long-term loans have terms greater than a year.
Revolving lines of credit provide access to funds for operations or unexpected business needs. There are also non-revolving lines of credit, which balances must be paid off usually within a month, for specific business purposes, such as construction. There are also business and corporate credit cards.
Small Business Administration (SBA) assistance
No doubt you have heard of this agency created by the Federal Government to help small and medium-size businesses. The SBA offers a series of programs of loan guarantees to enable banks to grant credit to businesses that do not comply with a certain requirement.
SBA funds are aimed at facilitating the purchase of businesses that are already established or founding a new one, for acquiring commercial property or making improvements, for buying machinery, for refinancing debts and other uses. Access the web site to learn more details.
Depending on the types of SBA funds, there are various percentage guarantees for future business owners that can be presented to the banking institution. Some guarantee 50%, 75%, 85% and even up to 95% of the total loan amount.
Do you need more information?
There’s a lot of information available. We invite you to visit one of our branches, where our experts can become your best ally. You can also call our Business Banking Center at 87-756-3939 or 1-855-756-3939.
1Financing products, either through credit cards, lines of credit or loans are subject to credit approval