The Five "C's"
The SGRC loan department uses the five "C's" of creditworthiness to determine whether a loan proposal is worth considering.
Character has to do with your credit reputation. It is good character that allows you to have an excellent credit history. Your credit report must be very good to be considered for a loan.
Capacity addresses the business' ability to produce during a given amount of time. It is the volume of activity that you and your business are capable of producing. This "C" is also referred to as repayment ability. Do your projections and/or past business history show a reasonable expectation of repaying the loan?
Capital is the money or other assets you have to put in the business or already have in the business. If you are starting a business you should be able to make a down payment in cash or other assets that the business will use. A rule of thumb is at least a 20% down payment in cash or assets.
Conditions refer to the market place you are entering and your management experience or skills that you bring to the business. If you do not have management experience, you must prove that you have hired personnel with the needed experience.
Collateral is the property offered as security to a lender to assure the loan is repaid. Collateral is a secondary source of repayment in case of default. If you default on your loan, your collateral will be sold by the bank and the SGRC to repay the debt. Collateral is an area of confusion for many people. For a start-up business, more than 100% collateral coverage is often required. The reason for this is the additional risk a start-up business has for failure. Collateral is discounted, which means that the market value of the property being offered is reduced. The reason for this is that when the property is liquidated, the lender knows that it will only receive a fraction of what it is worth. Generally, liquidations are done at auctions or quick sales.