How to use the 5Cs to supercharge your commercial loan application

Running a successful business takes hard work, determination, and sometimes, a little financial help. Whether you’re a small-to-medium business or a large corporate organisation, a commercial loan can be a great way to take your business to the next level.

To prepare a successful loan application, it’s essential to understand how lenders assess creditworthiness. To do so, they apply the 5Cs of credit: character, capacity, capital, collateral, and conditions.

These factors are used to evaluate an applicant’s ability to repay a loan. By being aware of the 5Cs, you can help to supercharge your loan application and improve your chances of approval.

Character

This demonstrates the trustworthiness of a borrower. As well as considering an applicant’s credit history and credit score, lenders will look at the stability of the business, and business revenue. A solid repayment record is also viewed favourably.

Capacity

This is about showing the financial means to repay the loan, and is determined by income, stability of income, and Total Debt Service Ratio (TSDR). TDSR is a measure of the borrower's ability to handle debt, calculated as the borrower's monthly debt payments divided by their gross monthly income.

Capital

This refers to the assets and liabilities of a business. Lenders review an applicant’s assets, savings, investments, and other resources, as well as the financial obligations of the business. Lenders will also take into account an applicant’s own capital investment, which demonstrates a personal financial commitment to the business.

Collateral

This is the security used against a loan, which can be used as a source of repayment in case a borrower defaults. Some lenders have rules on what can be offered as security, so it’s important to know what a lender will accept as collateral when preparing an application.

Conditions

This refers to the lender's requirements in providing the loan - including the interest rate, repayment terms, principal loan amount, and the loan’s intended purpose. Lenders may also consider competitors, the industry, and the current economy when assessing your application.

Ultimately, lenders seek to make responsible lending decisions that benefit both parties. By demonstrating character, capacity, capital, collateral, and understanding the conditions in your loan application, you can enhance your chances of approval, and obtain the loan you need to grow your business.

At MCMF, we use the 5Cs as a way of assessing loan applications too. However, our loans aren’t assessed by an AI bot or a corporate suit on the mainland - our Management Committee comprises Tasmanian professionals from the legal and finance industries, who meet regularly and personally assess each loan application.

In their decision, the Committee considers all of these 5Cs, as well as how your loan can benefit the wider community. At MCMF we know that as you grow your business to achieve your goals, you’ll be creating more opportunities in our state.

We’ve provided countless Tasmanian businesses with commercial lending solutions for over 100 years – and we’d love the opportunity to help you. Check out our commercial loans page, or click below to book a chat with us.