There may come a time when your business will need additional financing in order to spread its wings and grow. However, if you don't have the extra cash lying around, you’ll likely need to seek some sort of additional financing, like a business loan.

Unfortunately, not everyone who applies for a loan qualifies for one (if only it were so simple!). Lenders heavily vet their applicants as a way of separating the risky loan candidates from the not-so-risky ones.

To better understand how you can create a winning application and secure financing for your growing business, it’s important to understand the 5 C’s of Credit: character, conditions, capital, capacity, and collateral. These five elements of creditworthiness comprise the framework lenders will use to determine whether or not you’ll be a responsible borrower. Let’s take a quick look at all five now.


A lender wants to know the character of a borrower before leaping into business with them. To make sure you’re reliable and trustworthy, lenders will take a look at your credit history to assess the reality of the situation. In other words, they check both your personal and business credit history to see if you have a good track record when it comes to repaying your debt.

If a friend asks to borrow money, but you’ve heard they have a habit of borrowing and never returning, you probably won’t hand them cash any time soon. Similarly, by looking into your character, or credit history, a lender is protecting themselves from lending their money to someone who has a habit of not paying bills or repaying debt.

Although you can’t go back in time and change the way you've handled your money in the past, it’s never too late to shape up for the future and start rebuilding your credit. Pay down any outstanding balances, pay all your bills on time, and make timely payments on any debt. The longer you can prove that you can be reliable with money, the better it will appear to lenders.


No matter how well your business is run, there will always be outside factors that play a role in the amount of revenue you bring in. These conditions may include the current trends in your industry, the state of the economy, and political or environmental events, along with other varying factors.

If you own a butcher shop, and reports of mad cow disease start being discussed on the news, there’s a good chance you won’t sell as much beef, regardless of how stable your business would be otherwise — do you see what we’re getting at? Even the business of a borrower with an impeccable track record can go under due to outside conditions. For this reason, lenders will look beyond what they see on paper to make sure they understand the full scope of their risk.

Of course, there are some businesses that are already labeled as riskier than others, but you can show lenders you have a handle on things by setting up a business continuity plan to prepare for the possibility that things could get bumpy down the line. A plan of action lets lenders know that if something unexpected happens, you won’t be caught off guard. In addition, it never hurts to consider adding a little extra buffer to your savings account, if possible.


A lender wants to know how much you’re personally invested in your business. Do your assets exceed your liabilities, or is it the other way around? Do you stand to lose more than you would gain should your business fail?

Lenders want to know that you stand to lose something if your business doesn’t survive because they know you’ll fight that much harder to keep it alive. If they see you’re not invested in your own business, why should they be?

If you’re searching for a loan, it’s important to make sure your capital is in good condition. Not just because you hope to get approved for a loan, but for you as well. If you don’t have the capital you need, focus on increasing your assets and paying off your liabilities.


When a lender is looking at your capacity, or cash flow, they're looking to make sure you have enough money to repay your loan, plus interest. This shouldn’t come as too much of a surprise, since lenders naturally want to see the money they lend out come back to them.

One of the ways they’ll determine this is by figuring out your debt-service coverage ratio. This equation tells lenders how much debt you’ll be able to take on. They may also look at your cash flow statements to see how much capital you have available in your business.

If you want to up your chances of small business loan approval, make sure you have the money needed to repay your loan, plus interest, as well as an additional buffer of cash to assure lenders that you'll be able to make your loan payments, even if an emergency pops up unexpectedly.


By putting up some form of collateral, you’re giving lenders the right to seize said collateral if you default on your loan payments. Collateral is essentially a lender’s backup plan. It takes away some of the risk to lenders, as they know that they can liquidate any inventory, equipment, or property that you have in order to repay your debt if necessary.

The collateral you put on the table can be the final push you need to get a lender to approve you for a loan. If you have no collateral to offer to a lender, you may need to find an “unsecured” loan, with which you may be required to sign a personal guarantee.

Win the Loan Through Preparation

There’s no better way to prepare for a loan application than by knowing and understanding what a lender is looking for. The 5 C’s of Credit give lenders a straightforward, relatively predictable way to evaluate all the applications they see. By referencing the 5 C’s yourself, you’ll be able to tailor your loan application appropriately and give yourself the best fighting chance at securing financing for your business.