Capacity to repay is the most critical of the five factors. The prospective lender will want to know exactly how you intend to repay the loan. The lender will consider the cash flow from the business, the timing of the repayment, and the probability of successful repayment of the loan. Payment history on existing credit relationships - personal and commercial - is considered an indicator of future payment performance. Prospective lenders also will want to know about your contingent sources of repayment.

Capital is the money you personally have invested in the business and is an indication of how much you will lose should the business fail. Prospective lenders and investors will expect you to contribute your own assets and to undertake personal financial risk to establish the business before asking them to commit any funding. If you have a significant personal investment in the business you are more likely to do everything in your power to make the business successful.

Collateral or guarantees are additional forms of security you can provide the lender. If the business cannot repay its loan, the bank wants to know there is a second source of repayment. Assets such as equipment, buildings, accounts receivable, and in some cases, inventory, are considered possible sources of repayment if they are sold by the bank for cash. Both business and personal assets can be sources of collateral for a loan. A guarantee, on the other hand, is just that—someone else signs a guarantee document promising to repay the loan if you can't. Some lenders may require such a guarantee in addition to collateral as security for a loan.

Conditions focus on the intended purpose of the loan. Will the money be used for working capital, additional equipment, or inventory? The lender will also consider the local economic climate and conditions both within your industry and in other industries that could affect your business.

Character is the personal impression you make on the potential lender or investor. The lender decides subjectively whether or not you are sufficiently trustworthy to repay the loan or generate a return on funds invested in your company. Your educational background and experience in business and in your industry will be reviewed. The quality of your references and the background and experience of your employees will also be considered.

For additional information, see the following information from the Small Business Administration:

• SBA's Preparing and Presenting a Loan Proposal
• SBA's Loan Package Checklist

See the following Websites to check your credit history:

• Are there credit problems to clear up? 
  • See www.fool.com/ccc & www.cardweb.com
• Are there credit items that you do not know about? 
  • www.truecredit.com/fool
• Check this website: www.annualcreditreport.com - free access

About the United States Small Business Administration (SBA)
 
The SBA, established in 1953, provides financial, technical and management assistance to help Americans start, run, and grow their businesses. With a portfolio of direct and guaranteed business loans and disaster loans worth more than $59 billion, SBA is the nation's largest single financial backer of small businesses. Last year, SBA and its resource partners offered management and technical assistance to more than 2.6 million clients. SBA also plays a major role in the government's disaster relief efforts by making low-interest recovery loans to both homeowners and businesses. America’s 25 million small businesses employ more than 50 percent of the private workforce, generate more than half the nation's gross domestic product, and are the principal source of new jobs in the U.S. economy.

For assistance in filling out a loan application call Denise Beeson, (707) 541-7175.