By Greg Smith
Loan officers consider many things when determining whether someone is credit worthy. Bankers often assess these factors using what are called the “Five C’s of Credit.” They include:
Character: As one might expect, character encompasses several factors including a person’s reputation in the community. It also pertains to the qualifications a person has to successfully run the company and turn a profit.
Credit: This is closely aligned with character. Bankers not only evaluate the credit score but a person’s entire credit history. Does the borrower pay their obligations on time and as agreed? Do they manage their credit or are they over leveraged? Are there past bankruptcies, late payments, or charge offs?
Cash Flow: The business must demonstrate a positive cash flow. In other words, does it generate enough revenue to meet its expenses and make a loan payment? Lenders may be very interested in knowing whether there is a secondary source of repayment such as outside employment to cover the cost of the loan obligation.
Contribution: Lenders want to see that borrowers have “skin in the game” and generally expect a 10 to 20 percent contribution toward the cost of the project or purchase. Except in very rare circumstances, banks do not finance the entire loan amount.
Collateral: Loan officers have a fiduciary responsibility to make certain loans are repaid. A borrower must have sufficient collateral to pledge in case they are not able to make the payment. At times, a co-signer may be required who brings additional collateral or cash to the table.
Community: Lastly, lenders take into consideration the impact of the business on the community.
Sources of financing include banks and credit unions, loan programs offered through the SBA, economic development districts, the State of Oregon, and non-profit organizations.
If you are interested in learning more about these and other resources, plan to attend a webinar on Tuesday, Jan. 11 from 1-2 p.m. To register and obtain the Zoom link, please email Umatilla Electric Cooperative Business Resource Center at uecbrc@gmail.com. There will be a question-and-answer session following the webinar.
Greg Smith is the executive advisor for the Umatilla Electric Cooperative Business Resource Center. The office is located at 1475 N. First St., Hermiston. For more information, call is 541-289-3000.
