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Year after year and survey after survey, Canadian small business owners list access to funding as the most challenging part of growing their business. The Canadian Federation of Independent Businesses reports that of the smallest businesses (5 employees or less), almost 50{defcff05e0297cdbbfd01fb4267eded39e8d3cde8a3649f97f3e1f2938f8af6b} have applied for some type of financing in the past couple years. Of these almost one-quarter of them are turned down.

If you’re considering applying for financing this year, every lender – including banks, credit unions, and online lenders – looks at the same five categories of credit. Although the credit categories are the same, the credit scoring models that banks use can be drastically different than the credit scoring models that an online lender uses. For example, for a bank loan you need to show five years of profitability whereas an online lender requires only 6 months of sales history. Regardless of the “scoring” techniques here’s what every lender is looking for….referred to as the 5 C’s of credit.


Simply put, this is your reputation. When lenders evaluate character, they look at stability. For example, how long you’ve lived at your current address, how long your business has been open, how many years of industry experience you have, and whether you have a good record of paying suppliers and bills on time and in full. These days, social media profiles, activity, comments, and reviews of your business make it much easier to measure the “character” of you and your business.


This is arguably the most important factor a lender will consider in deciding whether to lend you money. It is essentially whether you have the capacity (ability) to repay the loan. Most traditional lenders have sophisticated debt to equity models but for the most part your current bank statements illustrate how/if you can repay the loan. For example if your average monthly ending balance is $1,000 and the loan repayment is $3,000 per month you probably won’t qualify.


Capital refers to the value of your assets minus your liabilities. In simple terms, how much you own minus how much you owe. The more capital/investment in your business – referred to as “skin in the game” – the better your chances of getting financing.


In most cases the loan applicant will be asked what assets he/she can provide to secure the loan. For example, if you own a home, car, or other personal assets, those will be considered when a lender decides whether to grant your loan request. The more collateral you have, the more willing a lender will be to lend you money. Most online lenders don’t require collateral but it helps improve your “score.”


Lenders consider a number of outside circumstances that may affect the borrower’s financial situation and ability to repay. The local economy, the industry, and the level of competition are factors every lender is looking at. For example if a business was in the oil and gas industry in Alberta in 2015 chances are they found it difficult if not impossible to access a working capital loan.

Although every lender looks at the 5 C’s of Credit, some – like Company Capital – tend to put more credit scoring “weight” on the performance of the business rather than the personal investment of the business owner.

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