The 5 Cs of Credit: Conditions

This week we conclude our look at the Five Cs of Credit and how lenders will assess your 504 loan application. The Five Cs are Character, Capacity, Capital, Collateral and Conditions. Today we will discuss conditions and why they matter in the lending process.

Much like assessing character, assessing conditions is subjective. Conditions refer to the overall economic environment and include markets, consumer trends, economic predictions and environmental considerations. Lenders want to understand how the economy will affect a business, and thus a borrower's ability to repay the loan.

Lenders will examine how sensitively your business's income is tied to economic downturns, and whether you have a plan to manage productivity and expenses if a recession occurs. They may also compare your business's performance with how your competitors are performing in the same economic climate. Lenders also consider factors related to marketplace demand and industry trends.

This is where a well-prepared business plan really comes in handy.

Your business plan will include a market analysis that explains the economics of the market, including its current size and projected growth. It will also address how you will comply with any current or future government regulations or requirements involving your business.

Your business plan will also identify your competitors in the market. It will explain how your company is unique and how you compare with your competition. It should include any percentages of the market share that your competitors serve, and your current and projected market share.

Although the global economic climate is beyond your control, lenders consider how these factors might affect your business as part of their decision about providing a loan. Having a good understanding of your industry and how economic conditions will impact your cash flow is crucial.

Understanding how lenders use the 5 Cs of Credit to assess the financial health of your company can help you increase your chances of a successful loan application process. Community Business Finance will help you gather the information needed for your 504 loan application and provide you with a choice of commercial lenders.

Contact Community Business Finance and discover how our knowledge of SBA 504 loans can get your business the financing it needs.

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