What bankers want to know before making a loan

It's called the "six C's of credit." When a banker is considering a loan, they use this tried-and-true list as a fundamental scorecard.

1. Character. This is the driver of all decisions. What is the character and integrity of the borrower? What do we know about this person? In loan scenarios where credit scoring dominates the approval process, it may be up to the small business owner to emphasize the value of this "C".

2. Capacity. What is the ability of the company to repay the loan? What is the company's cash flow picture? Most bankers will tell you that if they could only see only one financial document when considering a loan request, they would ask for the company's cash flow projections, because that's where they can see where their payments fit into the operation.

3. Capital. How much money is at risk? Is the dollar amount on the loan request justified by the supporting information provided by the borrower? Bankers work with both fixed and variable numbers as lending parameters when considering a proposal. Variable numbers would include how the amount borrowed compares to the borrower's financial strength (equity), sales volume, profitability, cash flow, underlying value of the asset being purchased, and so on.

4. Collateral. Collateral is the title to the truck to be purchased with the loan proceeds, the mortgage on the real estate, and the UCCs filed on inventory and accounts receivable.

5. Coverage. This is primarily insurance coverage. Bankers are prepared to take the risks normally associated with banking. Your interest rate and loan terms are based on that level of risk over which they feel they have some control. When possible, banks look for opportunities to shed risk that can be placed elsewhere, and not borne by the borrower or lender.

6. Conditions. Bankers ask themselves, "Does it work? Are the conditions right?" and then fit that comfort level into their decision.