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Bottom Line Up Front

  • Before lenders give you a business loan, they’ll examine 5 aspects of creditworthiness.
  • As a borrower, there are steps you can take to show lenders you’re credible.
  • Work with Navy Federal Credit Union to identify the business loan or line of credit that’s best for you.

Time to Read

4 minutes

July 20, 2022

Most businesses need to borrow money from time to time, whether to fund a startup operation, expand an existing business or just manage a rough patch. Wondering how to improve your chances of getting a loan approved? Having either a solid business plan incorporating the “5 C’s” of business credit or documented financial statements showing the overall health of your business will be a big help. Lenders use this information to help determine whether to extend credit, so be aware of how they may affect your loan application.

Here are the 5 areas that lenders really look at:

  1. Character. Lenders review your education and experience as well as personal and business credit history. They may view your loan application more favorably, for example, if you have an existing business or you’ve managed a similar type of business in the past and can demonstrate a successful track record. However, that doesn’t mean that you can’t get a loan if you’re switching fields or starting a business totally new to you. In those cases, your personal credit history and the general impression you make on the lender may weigh more heavily. It may be helpful to get character references from respected community members and former employers to bolster your case.
  2. Capital. You’ll need to put up a certain amount of money—perhaps from personal savings, an equity loan on your home or money from friends and relatives— in order to borrow more money. Not only may a certain amount of capital be required by law, but lenders also want you to have some “skin in the game.” They may be more willing to take a risk on your business when you’re willing to risk your own money as well.
  3. Capacity. Lenders want to be repaid, so your ability to repay the loan is a critical factor in determining approval. Capacity is based largely on the past and projected cash flow of an existing business. With a new business, it’s important to include a detailed explanation of how the business will be able to repay the loan by including projected expenses and income based on solid research, not just wishful thinking.
  4. Collateral. As a secondary safeguard to capacity, lenders may require a certain amount of collateral—basically assets that can be sold, with the proceeds going to the lender— in case you default on the loan. Collateral may include inventory, vehicles, cash, investments, receivables, real estate and capital equipment such as machinery. Some entrepreneurs use their personal homes as business collateral, but remember—there’s always the risk of losing your home if you’re unable to pay back the business loan.
  5. Conditions. Finally, your business plan should detail general market conditions and your business’ competitive edge. Demonstrating that you’ve done your homework—such as researching the competition, determining the demand for your product or service, developing a sales strategy, creating a pricing plan and assembling a team of financial, marketing and tax professionals—will go far toward convincing lenders that your plan is viable.

Turn to Navy Federal Credit Union

There’s one more “C” you shouldn’t ignore—your credit union. Navy Federal has the products and services—including business loans and lines of credit—that our members need to pursue a successful business strategy. Visit Navy Federal's Business Solutions page to learn more or call 1-877-418-1462.

Next Steps Next Steps

  1. Before applying for a business loan, consider the 5 C’s: Character, Capital, Capacity, Collateral and Conditions. 
  2. After looking at the 5 C’s, review and update your business plan, find ways to reinforce your creditworthiness and take steps to show your intent to pay back the loan on time and reliably. 
  3. Talk with a Navy Federal representative about the loan options available to you, and which ones might be best suited for your business or situation. Choosing the right loan or line of credit goes a long way!


This content is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.