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FUNDING A NEW BUSINESS - 2

© Barbara Massie

The International Financial Encyclopaedia might give you more information than you want to know, but it is a fascinating site.

Here we continue with the elements of a Loan Proposal:

• Financial statements and forecasts must be part of the proposal. These are easier to draft when you have been in business for a while, but even when a business is new, forecasts can be made of future sales and income. An accountant can help forecast cash flow and project five-year forecasts to show the resources available to repay the loan.

• Show your personal credit history by gathering all information on:

  A. A list of all credit cards, the numbers, balances and amount of payment.

  B. All outstanding loans, original and current balance and payment amount.

  C. Monthly rent or mortgage amount paid.

  D. Checking and savings account balances.

  E. Value of real estate owned, stocks, etc.

THE SIX Cs OF CREDIT The banker might be friendly, but most must also follow the Six Cs of Credit when lending money. This is a measuring process that takes six elements into consideration when analyzing a loan proposal. Evaluate the six and incorporate them into the loan proposal.

Character: Show you are trustworthy and reliable. This is based on your reputation and credit history.

Capital: This is the amount of money you have invested in the business or have to invest.

Capability: This is based on your income and the level of debt carried. It shows your ability to repay the loan.

Collateral: What assets are available to you? Equipment, land or stocks that can be used as security by the bank if you fail to repay the money.

Credit Worthiness: A credit report from the credit bureau tells the story. This will be both business and personal credit histories.

Coverage:This is any coverage of insurance or security measures taken to protect the lender's investment.

Read another opinion about bankers and credit, How does a lender evaluate my loan proposal?

Lenders will place different importance on each of the Six Cs, depending on the type of loan you need. Each element is important, but if you are requesting money to purchase equipment, the collateral and coverage elements will carry more importance. The equipment is the collateral, but insurance coverage must be adequate in case of loss or damage to the equipment. For a "line

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