Small Business Lending: Character Counts

2 min read • Aug 30, 2016 • Tyler Heaps

This is the conclusion to our series on the Five “C”s of small business lending. Today we’re going to wrap up with “C” number one:

  1. Character
  2. Credit Score
  3. Capacity
  4. Capital
  5. Collateral

Hopefully the lender you’re sitting across the desk from or on the other end of the phone with is just as interested in your character as your credit score. However, most, if not all lenders, suggest that the details of your credit report reveal a lot about your character.

Traci Flynn is a community banker, who considers character an important part of how she evaluates potential borrowers. How she does it might be insightful. She’s not looking for the “perfect” borrower—she knows there aren’t very many of them. What she is looking for is a good management team, realizing that even someone with a bruise or two who has done everything they can to stay current with their obligations, could be a good customer.

“If they have a good management team and they have some of these other factors in place, we can make a case to the lending board that the business is a good candidate for a loan,” she says. “Of course, there is a credit threshold we won’t go below, but we want to make sure we’re doing the best we can for all the small businesses in our community.” When she says “…some of these other factors…” she’s also talking about how you and your business approach the other ‘C’s.

She’s not the only lender out there who make the same claim. Banks, credit unions, and alternative lenders understand that the last few years have been tough for many small business owners. Nevertheless, depending on the reasons for a less-than-perfect credit score, it’s still possible to find a loan. The challenge is finding a lender who is willing to look beyond your credit score—which might require you to give them a reason.

One of the universal suggestions I hear from lenders to small business owners is to be prepared with a formal plan that outlines why you need the loan and what you are going to do with it. One way to demonstrate your character as a small business owner is to recognize your situation, the challenges that caused it, and offer a plan to overcome and mitigate those challenges in the future. Demonstrate that to the lender and they’ll be more inclined to work with you.

That being said, there will still be a credit threshold most lenders won’t dip below (although different lenders will have different thresholds), if you can’t demonstrate an ability to repay or don’t have any skin in the game, it’s not likely you’ll get a loan. For most lenders, the Five ‘C’s, in one form are another are still an important metric for whether or not you’ll get a loan.


Tyler Heaps

Tyler is a member of the Lendio marketing team. He is passionate about digital marketing, small business, and helping small business owners succeed. Tyler is an outdoorsman and loves spending time with his family.