What are the 5 C’s of commercial lending?

When applying for commercial borrowing there are plenty of business models you can use and each has their own place. When looking at the things that lenders will consider then the 5 C’s are a good place to start.

Here are the 5 C’s you need to be considering.

Capital

• The more ‘skin in the game’ the more committed you are. The more you have to lose the harder you play to keep things alive
• The more you leave in the company the more faith you have in your own business

This is all about how much personal risk you are taking in the project you seek funding for. The more risk you have the more committed you are deemed to be. With regard leaving cash in your company, if you leave cash in the business then it is considered shows faith.

Capacity

• Your ability to repay any borrowing
• Accounts, cash flow and awareness of cash
• Credit standing, defaults, CCJs etc
• Seasonality
• Single client or single supplier reliance
• Proven track record
• Consistency of performance

Capacity is all about your ability to actually do what is demanded of you within your business. It also looks at your personal strength and standing alongside the proven track record of your business.

Character

• Personal credit record
• CV
• Public records, Linkedin, Facebook, Networks etc
• Website up to date
• Client testimonials and external reviews

Your character is about what you have done previously that makes you suitable to run your business in the future. This element includes what other people think of you and how adept you are at staying up to date with things, this is where the website update comes into play.

With regard Linkedin, lenders will look at social media to see what it says about you. If you have an impressive CV and purport to be well connected then ensure Linkedin reflects this. Also ensure that your personal life on Facebook remains exactly that, get your privacy settings right!

Conditions

• Local market and local issues
• Political, social and legal issues
• Clarity of need and benefit

Ensure the benefit to borrowing is clearly shown remembering that commercial lending needs to benefit your business, not you in the first instance. You also need to consider the conditions around your business, being localised issues and external threats. LePEST is an old business model but is especially relevant at the moment with legal, political and social issues all very prevalent.

Collateral

• Not just property as security
• Balance sheet and assets within the business
• Doomsday scenario and lender exit

This is not just about property security although that does come into consideration. Collateral exists in your balance sheet, the assets and IP. For a lender collateral is all about how they get repaid should the business fail, this doesn’t just relate to property.

If you want the full explanation to the 5 C’s then the video version is below. Give it a watch and I hope it helps.

By Dave Farmer

Lime Consultancy are a commercial finance broker based in London and Sussex. If you have any comments then please add them to the post or contact us direct for any questions.

The Video Version

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