Are You Eligible to Apply for a Business Loan? The Five Cs of Credit Analysis


When a good opportunity comes, don’t let the lack of money or capital stop you from taking action.


Whether you’re planning to start a new business or thinking of expanding your current one, applying for a bank business loan can help you speed things up.

Leveraging on credit is one of the best tools for business growth. Simply saving up for that start-up capital or waiting for your business to generate additional funds can take a long time.

In most cases, capturing emerging trends is an essential part of business success. When a good opportunity comes, don’t let the lack of money or capital stop you from taking action.

So the question now is, how do you know if you’re eligible to apply for a loan, a business loan in particular? Here’s a simple guide to assess yourself.

In the world of finance, there are the five C’s of credit analysis. These are the five components that banks, cooperatives and other lending institutions usually use to evaluate creditworthiness. Let’s discuss each of them.


This is your capacity to pay the loan and is considered as the most important and critical of the five C’s. Banks will look into the financial statements and records of your business to see how it is doing.

If you’re venturing into business for the first time, they’ll look into your income status, personal credit history, and current assets and liabilities to evaluate your eligibility.

In general, owners of businesses that have been operating with consistent and high profits for the past three years or more are likely to get approved for a loan.

There are also other factors to consider but in a nutshell, the bank is looking for “proof” that shows you have the capacity to pay the loan.


This is the money you have personally invested into the business and can be seen from your financial records.

This is important for the bank because it shows the level of confidence you have for your business. Why would they risk their money if you yourself have “nothing to lose” if the business fails?

For those who really have no money to fund their business, your “capital” would be your business plan. A clear, comprehensive, and well-researched business plan shows how much dedication and passion you have for the business.

This is something that lenders and investors will expect from you, so make sure to prepare a good business plan.


A secured business plan will usually have lower interest rates. That’s why you should seriously consider if you can offer a collateral for your business loan.

Your collateral can be machinery, equipment and other business assets. Furthermore, you can also opt to pledge your real-estate properties and other personal assets such as your car.

If you have no collateral to present, then you’ll most likely get a higher interest rate or be approved only with a small amount for your business loan.

In some cases, this is not necessarily a bad thing. It really all depends on how much you need and for what purpose you need it.


Conditions refer to two things. First is your purpose for applying for a business loan, and the second is the local economic conditions.

The latter means that, when the financial climate in your industry is bad, then you’re less likely to be approved for a loan. In short, it’s not you—it’s the economy.

However, this component is really more about your purpose for getting that loan. In general, the best reason would be for business expansion—an intent to put up new branches, to purchase additional equipment, and/or to increase your raw-materials input and production system output.

For other purposes, the bank would most likely be more critical before they approve your loan application.


This is the most subjective of all the five components. Character is basically the general impression that you give to your potential creditors.

They will ask themselves questions like: Are you trustworthy? And will you really pay back the loan? Or will it become a bad credit loan for them?

To help them create a more accurate profile, they can look into your educational background and business experience. They might also ask and talk to your references.

But most of the time, they’ll first and foremost look into your credit history and check if you have mishandled accounts, delinquent credit cards and past due loans from others.

Lastly, they’ll also check if there have been legal cases filed against you, your partners or your business.

fitz Fitz Villafuerte is a Filipino entrepreneur, investor and a Registered Financial Planner.


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