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Five Cs of Credit

Planning to apply for a small business loan? At Navy Federal, we give every credit request the respect it deserves.

We take a great deal of time analyzing your information. All requests are put through the "Five Cs of Credit" test and are given a thorough review by our staff.

The five Cs are capacity, capital, collateral, conditions and character. Review the list to enhance the chances of getting your loan approved.

Capacity. Your business plan and/or prior year(s) financials must show that you can produce enough cash to repay the loan. This is the most critical of the five Cs.

Capital. How much equity do you have? This money may be obtained from your deposits, an equity loan against your personal residence or other sources. The credit union is bound by law not to lend 100% of your start-up or acquisition costs, so you need to be prepared to put something on the line to ensure your business's success.

Collateral. A lender looks at collateral as an additional credit enhancement. It won't necessarily make the monthly payments, but it could, if liquidated, help repay the loan. Again, regulations limit and dictate how much collateral we require. The loan request generally cannot exceed 80% of the collateral value. The 80% requirement is usually associated with liens against real estate. Other types of collateral such as accounts receivable and inventory may be at a lower percentage rate or lower maximum Loan-to-Value.

Conditions. Be prepared to prove that the conditions are right for your type of business. Make sure there is a market for your business, based on the conditions of the local, regional and national economy, the type of industry, the competitiveness of the business and your experience in the industry and managing a business.

Character. This is the general impression you make on the lender. Your educational background and business experience will be reviewed, along with your credit score. It's important to manage your personal credit carefully. Statistics show that the way you handle your personal credit is a strong indicator of how you'll manage your small business credit.

For more information, call our Small Business Services Group.