Start-up Financing: Making Your Dream a Reality

Getting Your Loan Approved: What do Potential Lenders Look For?

Many lenders will look for the four “C’s of Lending” when evaluating a loan application:

1. Cash flow. Your ability to repay the cash you are borrowing. This is measured using the cash flow forecast that you created for your business plan. 
2. Collateral. The value of assets that you are willing to pledge for assurance that you will repay your loan. A dollar amount will be placed on these assets and that will be compared to the amount of the loan you requested. 
3. Commitment. The amount of money that you're committing to your business. You can’t expect to obtain a loan without contributing a fair share yourself.
4. Character. Your personal credit score and history with the financial institution. Your credit rating or score is calculated from your history of borrowing and repaying bank loans, credit cards, and personal lines of credit. Without a good credit rating, your loan prospects decrease significantly.

A lender might determine how much to lend you by evaluating your cash flow, collateral, and commitment. They will then subtract your existing debt to arrive at a final amount. Note that lenders look at the limit on your credit cards, not the amount you're currently using.

Typically, start-ups are not rich in assets so you may be required to secure your business loans with personal collateral such as your house or vehicle(s).

The difference between a private lender and a government program is the relative importance of these four C’s. A bank might place more importance on “collateral” and “commitment”, whereas a government program can often decrease the need for these by providing a government guarantee to the lender.

Make a Good Impression With Your Lenders

You can increase your chances of securing a loan by:

• Having strong management and staff
• Showing steady business growth potential
• Showing reliable projected cash flow
• Offering collateral
• Having a strong personal credit rating
• Always making your loan and interest payments on time, and never missing a payment