Lender Loan Procedures – Insurance for Small Businesses

Smiling African American businessman

Dear M & M:

What does a lender look at to determine if my loan is feasible?


Dear Jim:

Many lenders will gauge a loan based on what they call the 5 C’s in lending. The 5 C’s of lending for small business loans are Character, Cash Flow, Collateral, Capitalization and Conditions. The 5 C’s are the underlying principles behind lending. Character: The basis here is the borrower’s credit report and his or her payment trends. Character gives an overall feel of how the borrower will treat the loan. Has the borrower met his past obligations? Cash Flow: There needs to be adequate cash flow available to repay the loan and allow the borrower to pay for all other small business expenses, including their personal needs. This is true whether calculating a business’s previous financial state or making projections for a small business expansion or a startup. Will you be able to pay the loan back from the proceeds of the business? Collateral: These are the assets that the borrower offers to the lender to secure a small business loan in the event it is not repaid. The primary collateral will be the small business’s assets. If these are not sufficient, personal assets may be required as additional security. Many bankers call this skin in the game.  Capitalization: This consists of the small business’s resources including fixed assets, retained earnings, and the owner’s equity. Funds borrowed from a source such as the seller of a small business do not improve the equity position of a borrower. Conditions: This refers to the outside factors that will be considered, such as competition and trends of similar small businesses in the industry.



Dear M & M:

What kind of insurance is needed for a small business?


Dear Beverly:

There are four types of insurance that are generally considered essential for small businesses: fire, liability, auto and worker’s compensation. Fire insurance — Compensates you for the loss of and damage to your business property by fire (may be required).Liability insurance — Helps protect you against lawsuits for physical damages to a customer while on your property and for liabilities arising from the use of your products/services (may be required). Auto insurance — Either private or business, is required by law for any vehicle used for business purposes. Worker’s compensation insurance — Pays benefits to workers injured on the job to cover medical care, part of lost wages and permanent disability in return for immunity from civil lawsuits by employees over such workplace injuries

Before buying any insurance, consider the risks that should be covered, compare costs from the different companies, and get professional advice from an insurance agent.



To ask your questions: Call the Small Business Development Center(SBDC) at Cochise College (520)-515-5478 or email schmittm@cochise.edu or contact the Sierra Vista Economic Development Foundation(EDF) at 520-458-6948 or email  hollism@svedf.org .


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