The 6 C’s to Securing a Small Business Loan

Do you want to start a business but lack the financial capacity to do so? If you’re going to apply for a loan, the first thing to know is that banks loan money to make a profit. Therefore, your primary goal should be to convince the bank that you can make them money. Banks assess this in many ways, but one of the most widely used systems for small business loans is called the Six Cs of Credit. Here they are, and not in order – all six are equally important.


Capacity refers to your ability to pay back the money you borrow. You should be prepared with current cash flow statements that prove your capacity to repay the loan.


This refers to your personal credit score. A high credit score means that you pay your bills on time. Also, you will probably have to sign a personal guarantee on the loan to prove you’re willing to take on the risk of the small business loan. A good credit score makes this an attractive proposition for the bank.


Capital is the amount of personal investment you’ve made in the business. Since undercapitalization is one of the most common reasons for small business failure, an owner should have some capital invested in the business before a bank will even consider a loan. Most banks prefer to see at least 25% of funding from the owner. Very few banks, if any, will underwrite a loan that has no capital investment from the owner.


Banks want you to have collateral that will help cover the loan. The more personal assets you can provide, the better your chance of getting a loan. Assets include your home, your car, and any other big ticket items that a bank can take possession of if necessary. You should be willing to offer almost any collateral the bank wants to secure the loan.


Character simply means your personal reputation. Be prepared to give references that speak to your honesty, reliability, and trustworthiness. Banks will follow up on these!


Conditions refer to the loan’s terms and conditions. The bank wants to be as certain as possible that the loan will be profitable. To ensure this, they may ask for evidence that the small business loan is legitimate. Be prepared to show the bank a detailed business plan, as well as receipts from vendors, which the bank may want to pay directly.

There are no guarantees to getting a small business loan, but being prepared by following the six Cs will go a long way towards impressing a loan officer.