As we continue to discuss the 5 characteristics or ‘C’s of small business lending we are going to continue to highlight what these ‘C’s are and how they impact small business owners when looking to obtain a small business loan. In this post, we are focusing on the fourth characteristic, Capital.
As a recap we talked about Collateral and why it was important for everything from a commercial real estate loan and how it also applies to other types of small business lending.
Bankers and other small business lenders are a pretty risk-averse bunch. They want to see skin in the game. It demonstrates that you have a real stake in the success and won’t be very inclined to walk away from your business and their investment.
I know your blood, sweat, and tears are a pretty substantial investment too; and you’re not likely to walk away easily if you’ve invested a lot of effort into your enterprise. Because there are enough that your lender wants to see a little more investment in terms of dollars and cents. Looking at it from that perspective, it makes sense.
Nobody wants to be the lender that finances a “Hail Mary” effort to save a sinking business. Having some cash on hand for day-to-day working capital, and maybe even some rainy day reserves tell the lender that the business loan you’re looking for isn’t a last-ditch effort to keep you alive for the next few months while your business continues to falter.
Lenders are looking for small business owners who are in a position to grow and expand. That’s why they exist. If that describes your business, measure you ability to get a loan based upon the five ‘C’s. Pretend to be the lender and determine for yourself if you measure up.