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Banks look carefully at borrowers before they lend money, especially in tough financial times like these. 1 reason banks say no to small business loans is “credit,” both poor credit and lack of credit. Although the general credit principles are the same, lenders look at business loans differently from personal loans. The lender looks primarily at the credit of the business. Because business loans are the riskiest of any type of loan, lenders are much more strict with their criteria. Don’t be surprised if your personal credit history is scrutinized, as well as the credit of the business.
What bankers look for in their approval process for business loans can be summarized in the following criteria, termed the “4 C’s of Credit. Business and personal credit are two different things. Most new businesses have no business credit, so they must use the personal credit of their owners. Capacity refers to the ability of the business to generate revenues in order to pay back the loan. Since a new business has no “track record” of profits, it is riskiest for a bank to consider. Capital refers to the capital assets of the business. Capital assets might include machinery and equipment for a manufacturing company, as well as product inventory, or store or restaurant fixtures.