A local business owner just called to say she got the loan! Yahoo! In this tough credit time you still can get financing if you are tenacious and cover your five C’s of credit.

There are a few organizations we don’t normally think about for financing needs. The state of California operates a loan guarantee program similar to Small Business Administration loan guarantee program. For more information on state guarantee programs contact SAFE-BIDCO at www.safe-bidco.com

Recently many local businesses have been able to obtain financing through local credit unions.  Credit unions are non-profits and often have favorable rates for their members. Some cities, like Fairfield, use Community Development Block Grant funds to set up revolving loan pools for their local businesses.  

Whether it is a commercial loan, SBA loan, state loan or local loan, you will need to demonstrate to the lender you have the ability to repay the loan.  Below is an overview from the SBA Web site of the five C’s of credit, which outlines what lenders look at when making a decision whether or not to loan you money.

Capacity to repay is the most critical of the five factors. The prospective lender will want to know exactly how you intend to repay the loan. The lender will consider the cash flow from the business, the timing of the repayment, and the probability of successful repayment of the loan. Payment history on existing credit relationships — personal and commercial — is considered an indicator of future payment performance.

Capital is the money you personally have invested in the business and is an indication of how much you will lose should the business fail. Prospective lenders will expect you to contribute your own assets and to undertake personal financial risk to establish the business before asking them to commit any funding.

Collateral or guarantees are additional forms of security you can provide the lender. If the business cannot repay its loan, the bank wants to know there is a second source of repayment. Assets such as equipment, buildings, accounts receivable, inventory, are considered possible sources of repayment. Both business and personal assets can be sources of collateral for a loan. A guarantee, on the other hand, is just that — someone else signs a guarantee document promising to repay the loan if you can't.

Conditions focus on the intended purpose of the loan. Will the money be used for working capital, additional equipment, or inventory? The lender will also consider the local economic climate and conditions both within your industry and in other industries that could affect your business.

Character is the personal impression you make on the potential lender or investor. The lender decides subjectively whether or not you are sufficiently trustworthy to repay the loan or generate a return on funds invested in your company.

The Napa Valley College Small Business Development Center has Business Advisors that can help you match your capital needs with the loan program and also help you address the 5 C’s in preparation for approaching a lender.  For more information, contact the SBDC at 253-3210.