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Business bank loans are notorious for being unnecessarily complicated, particularly when it comes to the approval process. As if mountains of paperwork weren’t tedious enough, potential borrowers must also fulfill a series of criteria known as the 5 C’s of Credit.

The 5 C’s stand for Character, Capacity, Capital, Conditions, and Collateral.

Each factor simply presents another excuse for denying a perfectly healthy business with loads of potential the funding it needs to stay competitive. The criteria can be both broad and narrow at the same time, putting potential borrowers in a lose-lose situation.


Banks use this word to give the impression that people who seem trustworthy, honest and responsible during face-to-face interactions have a higher chance of approval. This couldn’t be farther from the truth. Credentials, references, and your reputation within your industry are examined but they are not what banks are paying most attention to when they attempt to assess your “character.”

In the banking and loan industry, “character” is actually code for “credit history.” In the opinion of banks, you can’t possibly have good character without a perfect credit score. This is reportedly the most important element of the 5 C’s of Credit, as opposed to, say, the current financial standing of the borrower’s business. Alternative business financing companies, on the other hand, have repeatedly proven that a low credit score in no way ascertains that a borrower won’t be able to pay off debt. Many hard-working business owners have low credit scores for a variety of reasons, such as having just one credit card, a low credit utilization rate, or unpaid medical bills.


This is the only “C” that actually has some relevance, because it really stands for “cash flow.” All lenders, not just banks, measure cash flow by looking at cash flow statements and your debt-to-income ratio. They want to know how much capital you have available every month after covering regular payments like payroll, rent or inventory. Your financial statements must show that you have plenty of unused capital that can now be devoted to loan payments.

The only problem is that traditional lenders will review cash flow-related data for several months if not years, usually because such lenders only approve businesses that have been in existence for at least two years. A number of industries experience cyclical inconsistencies in revenue, especially those that conduct the most sales during certain times of the year, like the summer or holiday season. Cash flow statements from these businesses would suggest instability or even a difficulty surviving if they show an entire year’s worth of information. This is why alternative business financing companies like United Capital Source only review fairly recent financial statements and bank statements. Odds are, if a business has money in the bank and is currently performing well, some extra funding will surely be put to good use.


This refers to how much of your own money you’ve invested in your business. Traditional business lenders are more likely to approve business owners who have something to lose if the business fails because it means the lender is not 100% responsible for supporting them. They want to see that you’ve made personal sacrifices to start your business and maintain it through thick and thin. Business owners who have their well-being resting in the hands of their business will fight harder to keep it alive.

The track record of traditional business lenders, however, suggests that Capital is the least important of the 5 C’s. If banks valued personally-funded businesses so favorably, wouldn’t the wealthiest businesses have a much harder time being approved? Businesses that are funded by wealthy families, for example, are in no way at a disadvantage when it comes to obtaining additional funding. You would think that women would be more likely to be approved for business loans than men considering women start their businesses with half as much money as men. This is clearly not the case: Small business loan approval rates for women are 15-20% lower than men, according to the National Women’s Business Council.


Certain industries are often stereotyped as “risky” due to financial instability, rate of evolution, or issues that occurred in the past. Traditional lenders primarily approve businesses involved in industries that are doing very well and are not poised for any significant changes. If a lot of businesses similar to your own are failing, your chances of being approved are extremely low.

This element of criteria is unfair to the countless businesses that are performing well despite being part of industries that are prone to instability, like retail, food service and hospitality. Not only are these industries highly-competitive, but they are also prone to seasonality, or a dramatic drop in revenue in the months before the summer or holiday season. What traditional lenders don’t realize is that even the most successful businesses can experience inconsistencies in cash flow, solely because of the natural progression of their industry. Alternative business financing companies do not discriminate based on such conditions because the businesses they impact are capable of generating massive amounts of revenue when the opportunity presents itself.


Borrowers are immediately perceived as reliable if they can provide collateral, or something the bank can sell if the borrower fails to pay off the debt. Examples include real estate, equipment, or a car. Collateral is mandatory for most bank loans, and many traditional business lenders will only let you borrow an amount equal to the value of whatever you’re willing to put up.

You don’t have to be a financial genius to understand why a lot of business owners wouldn’t want to risk losing their car or their home. As if taking out a small business loan wasn’t stressful enough. It’s obviously difficult to manage funding correctly when vital possessions are on the line, no matter how confident you are in the initiative at hand. Besides, most owners of newer businesses don’t own property or expensive equipment. Unless you have been in business for at least a year or so, equipment, inventory, property and company cars are typically rented.


United Capital Source will never threaten to take your home in exchange for small business funding or in most cases even make you sign a personal guarantee. You don’t have to have a perfect credit score or flawless cash flow statements spanning an entire year. All you need is proof that your business is generating a consistent stream of revenue and a clear idea of how to use your desired funding. Don’t stress over the 5 C’s if your business has earned the means to evolve and speak to a business funding expert at UCS today!

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