The Five Cs of Credit
Are you an entrepreneur looking to start up a new boutique or local restaurant? Or are you an owner of an established firm seeking to expand or upgrade? Either way, securing financing for your business is sometimes an overwhelming process.
UMB has a long history of being prudent in our lending. We don’t want to put our customers, or ourselves, at risk, so we follow a sound underwriting process to ensure we are making the best decision for everyone involved.
Here are some common guidelines we use when it comes to the loan process.
This is the overall impression you make on the banker. Business experience and educational background will be evaluated, along with references and past experience.
Word of Advice: You need a business plan. Be open and honest – you should provide the most accurate and objective information about the business and industry landscape.
You will need to detail exactly how you plan to repay the loan. Business cash flow, repayment timing and likelihood of repayment will be considered, as will payment history on your current credit. Financial partners need to have confidence that your business will generate enough cash to operate and sustain the company.
Word of Advice: Prepare to have money set aside for a down payment. Don’t come to the table empty-handed.
This is the money you have individually invested in the business and is used to assess your risk should the venture not succeed. It’s important for you to demonstrate a personal financial commitment before seeking third-party funding.
Word of Advice: Financial institutions generally require that at least one-third to one-half of the business be funded with your money.
This is where assets you own are pledged to the lender as a secondary source of repayment in case the loan is not repaid. You also may be required to sign a guarantee with the promise to repay the loan if you cannot repay it with the profits from the business.
Word of Advice: Most banks will expect the collateral assessment to be greater than the loan amount.
This is the outlined plan for the loan, with details on how it will be used and for what purposes. Current economic and business conditions for all industries, as well as your business’ specific industry, will also be evaluated.
Word of Advice: Have a strong knowledge of industry trends, both nationally and in the local market. Timing can be critical.
You should pick a financial lender that will be your partner, not just your bank. After that, securing a loan to start or grow a business should be a smooth process and you’ll be well on your way to fulfilling your dream!