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Small business lending is on the rise but it will not look like the free-wheeling days of old. According to Wells Fargo, banks are back to looking for small businesses to demonstrate their ability to address the old fashioned Six C’s of Credit:

Capacity

What is your capacity to grow? What are your cash flows, profit, and debt levels? How will you repay the loan?

Character/Credit Score

What is your personal and small business history of credit management?

Conditions

What is the purpose of the loan? How will the money be used?

Capital

How much of your own money and investor money do you have in the business? Banks want to see a personal stake in the success of the business.

Collateral

Loans can be secured or unsecured. Depending on the amount and purpose of the loan, collateral may be necessary in the form of accounts receivables, inventory, equipment, or real estate.

Customer

You are more likely to get a loan from a bank when you are already a customer in some other area. A small business should establish a depository relationship with a bank at a minimum as well as consider cash management services, personal banking, and investment services.

If this seems like a tall order, then take some comfort in the fact that it will not just be banks requiring more rigor and financial control of your business. Good discipline will get you the very best rates and lower your overall expenses for insurance and taxes as well as increase your chances of obtaining outside investors.

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