“The Four C’s”: Why you must consider them when applying for a business loan


This week’s blog post is about a concept called ‘The Four Cs’, and what it means for you when applying for a business loan.

While it should be possible for you to get a loan with the help of a skilled mortgage broker, these ‘Four C’s’ will help you get an idea if you and your business would be eligible to apply and which loan would suit you best.

The Four C’s of credit refer to four ideas that loan businesses and banks use when judging loans, and that you can utilize in your loan application.

It is important to be aware of them if you want to have the best possible loan application. The Four C’s are Character, Capacity, Collateral, and Capital.

The Four C’s:

The first C, Character, concerns your company’s status. Is it financially secure, do you have any unpaid debts, are the shareholders financially secure, how long has the business been operating for, your online presence – all these things are considered by a potential lender.

Make sure you are aware of your credit profile before you apply for a loan.

The second C, Capacity, concerns the ability of a borrower to be able to pay back the money borrowed.

Banks and money lenders will check out your past profit and loss statements if you have any, past bank statements, and recent financial information.

Make sure you give the lender the most amount of data you can, so that they can make the best possible decision in both your and their interests.

The third C stands for Collateral.

This refers to something, such as a house, accounts, money, or land, that serves as security in your application.

This is not necessary for unsecured loans, which typically have higher interest rates and are harder to get approved due to the lack of security.

When assessing your security, the lender of the loan could reflect on the security’s whereabouts, how old it is, and it’s qualities.

The fourth C, Capital, is part of assessing the financial status of the person borrowing money.

Areas such as liquidity, assets, a borrower’s contribution or potential deposit, liabilities, and overall net worth, are examined by a possible lender.

Capital, in short, is extra security.

It can be equipment, money, or anything already put into your business.

Capital is examined in case you cannot pay back the money you have borrowed, and in that case is taken by the lender.

When assessing capital, lenders look at how much the capital is worth now and how much it will be worth at a later point.

Key points:

  • First C = Character – the borrower’s financial history.
  • Second C = Capacity – are you able to pay back the loan?
  • Third C = Collateral – your assets.
  • Fourth C = Capital – extra security!


Ultimately, if you want to have the best possible chance of getting your loan approved, you must be aware of the Four C’s and how they can impact on your application.

At the end of the day, it is best to consult a financial advisor and a mortgage broker to see if you and your business are in the right position to apply for a loan – and most importantly, would be able to pay it back.

If you are considering applying for a business loan, or would simply like some more information, please get in touch with the friendly team at AA Finance Solutions for further support.

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