What Some Banks Don’t Want You to Know

Ever wondered how banks really decide whether to fund a small business loan?  Sometimes, it seems like they pick out of a hat or throw darts at a board with business names written on it.  It can appear that arbitrary and it IS somewhat arbitrary.  There are certainly quantifiable criteria that are examined, but there are qualitative considerations as well.  This article sheds a little light on what those 5Cs–Capital, Cash Flow, Collateral, Conditions and Character–really mean and how a bank might look at them for the purpose of deciding whether or not to lend money to a given company.

Author: Jay Goltz

Source: The New York Times, June 29, 2011

Several weeks ago, the top small-business bankers at Wells Fargo agreed to take questions from You’re the Boss readers. For reasons that escape me, I’ve found that bankers are often reluctant to tell small-business owners precisely what they expect from borrowers, so I couldn’t resist contributing a few questions.

Hoping it might be useful to all small-business owners, I asked for specific guidelines that relate to the minimum requirements the bankers look for when considering a loan. I referred to the well known “Five Cs” of credit: character, cash flow, collateral, capital, and conditions. Basically, I asked the bankers to pretend that there were no public relations people or lawyers in the room and just tell us what they really want from us. For example, how do they define good character? Is it O.K. if you’ve been married four times? What if you don’t go to your son’s baseball games?

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