What are the 5 C's of Business Lending? Getting Financing in Today's Environment

Yesterday, I attended a seminar entitled “Getting Deals Done- New Considerations in the M&A Market” at the Duquesne Club, in Pittsburgh, PA, sponsored by Schneider Downs Corporate Finance.

It was well-worth my time. The panelists effectively talked about the current M&A market, explaining simply accounting and finance concepts that often are esoteric. I was not surprised at how well-run the event was. Schneider Downs’ Tricia Warrick is one of the most impressive corporate finance professionals I know.

The seminar was chock-full of useful information. One slide particularly stands out as being of interest to my business clients and fellow colleagues. What are the 5 considerations a bank typically makes before extending credit?

1. CAPACITY (whether the borrower is operating within his or her abilities and not attempting to accomplish something beyond limitations or means. Look to position in the market, experience in the industry, and track record in business. Cash flow projections/earning potentials are considered).

2. COLLATERAL (the borrower’s ability to guarantee the loan with tangible assets as a secondary source of repayment).

3. CONDITIONS (of the business and industry. What are current market conditions, the nature of your business, the demand for your products and services, inflation rates, interest rates, local and global economic conditions, labor conditions, current business trends related to your business, and current losses that the lender suffers due to credit issues?).

4. CHARACTER (integrity/trustworthiness/credit score and how borrower has handled other financial obligations).

5. CAPITAL (what you have right now that has value –your assets and net worth or equity [assets minus liabilities]. Debt to net worth ratios are considered).

I also found these articles on the web regarding the 5 C’s:

http://www.finweb.com/loans/the-five-cs-of-lending.html
http://www.debtkid.com/banking/5-cs-of-lending

I encourage my clients and colleagues to catch one of Schneider Downs’ informative seminars. The next one is December 2, 2009, at the Sheraton Four Points in Mars, PA from 8 a.m. to 10 a.m. Topic: Executive Roundtable: Valuing Your Company in These Uncertain Times. Also, these seminars are FREE.

http://www.schneiderdowns.com/Seminar_CorpFin09