Five Things Lenders Assess in Every Loan Application

Every lender has its own policies, but they all ask the same core questions before approving a loan. In finance these are known as the “5 Cs of credit”. Understanding them helps you see your application the way a credit assessor does, and fix weak spots before you apply.

1. Capacity: can you repay?

The lender looks at your income, or your business’s cash flow, and your existing commitments to check that you can comfortably meet the new repayments, with a buffer for higher rates. For businesses this means financial statements, BAS and bank statements.

2. Capital: what are you contributing?

Your deposit, equity and the financial strength of the business all show the lender you have something at stake. A larger contribution usually means a lower risk, a better rate and more lenders to choose from.

3. Collateral: what security is offered?

Property, equipment, vehicles or invoices can secure a loan. The lender values the security and limits the loan to a percentage of that value. See what LVR means.

4. Character: what’s your track record?

Your credit history, repayment record, time in business and industry experience all tell a lender how you’ve handled credit before. Past issues aren’t always a deal-breaker if they’re explained and resolved.

5. Conditions: what’s the loan for, and what’s happening around it?

Lenders consider the purpose of the loan, your industry and the economic conditions affecting your business. A clear purpose with a sensible plan is far more convincing than a vague request.

How a broker helps

Lenders weigh the 5 Cs differently: one bank may focus on servicing, while a private lender looks mainly at security. We match your strengths to the right lender on our panel of 100+. Read more on our 5 Cs of credit page, or see four things to do before applying for a business loan.

Frequently asked questions

What is the most important factor in a loan application?

Capacity, meaning your ability to repay, is usually the starting point. Even with strong security, most lenders won’t approve a loan the borrower can’t comfortably service.

Can I get a loan with bad credit?

Often, yes, through specialist or private lenders, especially if you have security and can explain what happened. Expect a higher rate and a lower maximum LVR.

How can I improve my chances of approval?

Prepare complete documents, keep tax lodgements up to date, reduce unnecessary credit limits, avoid multiple applications, and choose a lender whose policy fits your situation.

This article is general information only and doesn’t take into account your objectives, financial situation or needs. Speak to us or your accountant before making a decision.