The 5 C’s of Credit

Often when starting or expanding a business we look to borrow funds to accomplish ourBusiness Consultations business goals. When approaching a lender it is beneficial to understand the criteria that a lender uses to determine the “risk” and “suitability” of lending to a particular individual or business entity.

One thing to consider when looking for funding is that you are essentially entering a sales process, just like any other negotiation. The lender is the seller and the person seeking financing is the customer. This is often overlooked or reversed as individuals/businesses seeking financing see themselves in the subordinate position which is not always the case.

Before seeking financing it is important that you understand the 5 C’s of credit and how they can impact the decision-making process as well as the outcome.

The real question that you need to answer is – “How strong of an applicant am I?”

The 5 C’s of Credit


  • Presentation – how you are perceived – this can be judged on appearance and how well you have prepared for the meeting.
  • Credit rating – from Equifax or Transunion. Having strong credit repayment history and low credit utilization is a good thing whereas a credit score with weak repayment frequency and high credit utilization can create a weak credit report.

If you don’t know your credit score you can access the credit reporting agencies to find out what your credit rating is before seeking financing.


Capacity is one of the most significant factors when securing a loan. Do you have the capacity to pay back the loan in the eyes of the lender? The calculation is an individual’s total debt service ratio, which cannot exceed 40% of income monthly. Your forecasted cash flow may indicate income but is not a guarantee of income.


Another critical factor when looking for financing is collateral. The lender may want something tangible that they can “register” if they are going to lend out the money. In some cases the “better” the collateral the better the interest rate. The best collateral is tangible items that are registered and have a serial number or identifier, excluding RRSPs.  Items like rare art and unusual homes have a lower collateral score as they would be more difficult to value or sell. As general rule, you can look to borrow up to 60% of the value of an asset although this varies greatly depending on the asset.

The closer to cash (liquid) the collateral is the higher the percentage that can be borrowed against it. For a bond it could be 100% and typically for land it is around 75%.


This is a calculation of an individual’s net worth. Capital includes things that you have in your possession that could be used to pay back the loan which are normally not used as collateral such as jewelry, valuable art work, etc.

You will not be able to use these items as collateral but they can be included as part of your personal net worth.


This is a “common sense” or objective look at the loan purpose and business and whether the loan makes any sense or not to the lender. This is where a past relationship with the lender may provide more influence on the outcome. While conditions can play a role in securing financing, it is most likely the least significant of the Five C’s.

Before seeking financing for any endeavor, it would be advisable to consider these 5 factors of credit. Knowing how strong of an applicant you are will be beneficial in presenting a strong case for successful negotiation of a loan instrument.

The Halton Region Small Business Centre is here to help you. One of the goals of the Centre is to empower small and medium-sized enterprises and give you the tools to achieve success.  For more information about resources, services, business events and seminars, contact us by dialing 311, 1-866-442-5866, online at, by email at or visit us at 1151 Bronte Road, Oakville. You can also follow us on Twitter.

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Business Partnerships/Strategic Alliances

Partnerships come in many different forms.  You need to consider which one best suits your business structure as you grow and keep the integrity of your business.

Internal Partnerships

If the foundation of your business is based on a partnership, it is important that you takePartnerships the time to plan the structure of your organization carefully in order to distinguish the roles and responsibilities of each partner. The legality and risks of the partnership should be discussed up front and a partnership agreement needs to be drawn up. This type of partnership is like a marriage and nothing should be left unsaid. Two great minds think alike but two creative minds think differently. Within an internal partnership, personality traits and skills need to be distinguished and discussed so that they can be utilized to strengthen the business. There should be regular discussions about the goals and the future of the business – communication is the key. Continue reading

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Salute to Small Business Month

As a small business owner, there are typically no performance reviews, no annual awards Open for businessor bonuses for a job well done – it is just you. You are the driving force behind your business and the sales team out in front of customers.  However, once a year there is a month where events and festivities celebrate the contributions that small business owners make to their community.  October is Salute to Small Business month.  Halton Region uses this opportunity to let local businesses know how much we value their contribution to our local economy, and to provide them with opportunities to achieve success.

According to the 2013 Halton Employment Survey Results, the vast majority of Halton’s businesses were micro- and small-businesses: 82.3% having fewer than 20 employees. Small business is truly at the heart of the economy in Halton Region. Continue reading

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G.R.O.W. Your Business – Getting Results Online Workshop

With the use of smartphones and tablets to access social media sites as well as specificBridgesToBetterBusiness October 2014
company websites, small business owners need to understand how to find and engage their clients online. Website strategies need to include SEO and mobile integration to better serve customers now and in the future.  Along with the top social media channels, Twitter, Facebook, Pinterest, LinkedIn, what other social media channels are being used by consumers? Continue reading

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Changing Seasons spell changes for Business

September is here and the children have returned to school.  This serves as a reminder Cloudthat the season is changing and fall will soon be here.  It also reminds us that seasonality is something that can impact our business as well.

Changes in weather and season both pay a significant part in our daily work lives. Seasonality impacts everything in our lives from when our target customers may want our products and services and more importantly, when they may not want to engage with our business.  These seasonal fluctuations must be identified so that we can adjust our operations accordingly. If sales are declining, what actions are required to reduce expenses during this period? This continuous cash flow management is even more important to the business when looking at significant external changes. Continue reading

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Managing Your Time

For a busy entrepreneur, your time is your most valuable resource. There are only soTime Management - August 13 many hours in a day, and chances are you will not be able to accomplish everything that you want to. This makes time management one of the most important skills an entrepreneur can have. This can be especially important when running a smaller business with little or no support staff, forcing the owner to juggle multiple roles within the company. Here are some tips to help ensure that you and your business are as productive as possible. Continue reading

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Success through Cooperation

July 28Success through CooperationOne of the first decisions that any business owner has to make when starting a new business is choosing the business structure for their operation. The three most well-known business structures include the sole proprietorship, the partnership and the corporation.

While these are the most prevalent types of business structures, it is important to know that there is a 4th structure that operates the organization on communal and democratic principles:  the co-operative. A co-operative is an organization that is owned and controlled by its members. They are often formed when a group of individuals comes together to meet a common need, and they can be for profit or not-for-profit. Business decisions made by a co-op are made democratically, with one member receiving one vote.

There are several reasons why you may wish to create a co-op. Some of these may be:

  1. To provide a service that other forms of enterprise are not offering, or to provide it in a different way.
  2. To keep a community or business alive when a private model is no longer able to.
  3. To keep profits and control of the business locally, and to ensure that profits are re-invested in the company and shared with members.

Continue reading

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