The 5 C's to Obtaining Credit

Guest blogger Josh VanBrakle is the Wood Products Utilization and Marketing Specialist at the Watershed Agricultural Council. Here, he shares with you five reasons why you need to get inside a lender's brain and the workshop solution. 

For small businesses, getting financing is a pain. There’s no escaping it, especially when you’re in a rural industry like farming or logging. Lenders see small businesses as risky, and farming and logging as riskier still. Add to that the general reluctance of banks to make loans following the Great Recession, and it’s a wonder anybody gets money to do anything.

But you’re an entrepreneur. You’re not going to let a bunch of bankers keep you from fulfilling your dreams. You’re going to get the money you need to start or expand your business. The only question is how.

Successful bids for financing start long before you enter a bank. As you prepare your loan application, put yourself in the lender’s shoes. Suppose they came to you looking for the same amount of money you’re requesting. What would you require from them? What interest rate would you charge? Would you lend them money at all? Why or why not?

When lenders ask these questions, they answer them using five categories – the “Five C’s” of credit. If you want financing, be prepared to address them all:

1.  Character – an examination of your managerial ability and credit score.
2.  Capital – lenders want to see a net worth - what you own minus what you owe - greater than 50% of total assets. Growth in net worth over time is also a plus.
3.  Capacity – historical gross and net income as well as future projections. This is where a business plan comes in handy; it makes the case that your projections are realistic.
4.  Collateral – an identified source of repayment if your income projections don’t work out.
5.  Conditions – if there are weaknesses in any of the first 4 C’s, lenders may impose conditions such as requiring a co-signer or additional collateral, among others.

More than any “C’s,” the most important thing to remember when seeking financing is that you’re building a relationship. At the least, you’ll be making payments, and ideally, you’ll be coming back for additional help as your business grows.

A great way to begin building that relationship is to meet lenders and learn what they want to see in applicants. The Watershed Agricultural Council is providing just such an opportunity in July – a pair of workshops called “Financing Your Business.” These workshops will feature regional lenders and provide forum time when you can ask questions and get feedback from other business owners.

The same workshop will be held twice, on consecutive days at different locations:

July 10 from 4:30 to 8 p.m. at Sullivan County Soil and Water Conservation District office, 64 Ferndale-Loomis Road, Liberty 12754  REGISTER ONLINE HERE FOR LIBERTY

July 11 from 4:30 to 8 p.m. at  Brooks' House of B-B-Q, 5560 NYS Highway 7, Oneonta 13820  REGISTER ONLINE HERE FOR ONEONTA 

Use the links above or call Marilyn Wyman at Cornell Cooperative Extension of Columbia and Greene Counties at 518-622-9820. Each evening workshop costs $20 and includes dinner.