The 5 C’s of Getting Money From a Bank


Never try to get a loan when you need it. Banks love to
loan money, but the best time to build a relationship
with your banker is before you need to borrow it. Most bankers will tell you that they look at the five C’s—Character, Capacity, Capital, Conditions, and Collateral when making loans.

Character. Does the banker know you? It’s easier to loan money to someone you know. To get to know your banker do one or all of the following.

1. When you make a deposit, go over and introduce your self to your banker/loan officer. Tell the banker who you are, what you do, and what you want to do in the future.

2. Join community service organizations that the bank loan officers belong to.

3. Greet your banker when you see them outside the bank.

4. Develop a reputation for ethics and integrity.

Banks lend money to people not to financial statements.

Capacity. Do you know your stuff? Bankers want to lend money to people who are competent and have demonstrated that they can perform. Thus, a person with five years experience in the Dry Cleaning Business would have an easier time obtaining a line of credit for their laundry business than they would trying to borrow funds to open a restaurant.

Capital. How much money do you need? You need to have a clear understanding of the amount of funds needed and on what you intend to spend it. Develop a cash flow statement that explains what you intend to do with borrow funds, how the expenditures will generate sales, how profitable you will be, and how you will pay the loan back. Keep in mind that banks do not plan to take a risk that doesn’t pencil out, in other words, doesn’t make sense to them.

Conditions. What are the terms of the loan? Terms of the loan should be so that the business is not stressed to pay it back. As mentioned above, loans should generate increased sales and profitability. If the purpose of the loan is to relieve a non-cash generating burden, such as taxes, then the loan terms become critically important. Loan terms should not be onerous or reduce working capital to the point that the business cannot perform its basic functions.

Collateral. What are you putting on the table? Bankers provide liquidity; they are not venture capitalists. Many inexperienced business people believe that bankers can provide the risk capital for a new venture. Not so. Thirty percent of what you need should be provided by you in the form of cash or other assets, such as the equity in your home or business. Banks are not going to take large risks. Banks love customers that pay loans back as agreed to.

To learn more about how to start up a business, obtain funding, or operate your business, enroll in COCC’s Entrepreneurship Program, Small Business Management Program, or take seminars from the Center for Business and Industry (Business Development Center). (541) 383-7290 or 383-7713.


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