A great balance sheet and income statement aren't necessarily enough to get your company a bank loan. Below is a list of the C's of credit. While there is some debate about how many C's there actually are, below are the major ones.
CHARACTER - Every bank uses this criterion as their most important. It is a simple test of how good the character is of the borrower. Basically if the bank doesn't trust you and respect you they won't be writing you a check.
CAPACITY - Another important aspect is the capacity of you and your management staff. If the bank feels that management is not as good as it should be or has a bad track record it will be hard to reach a deal.
CAPITAL - Whether you are a public company with equity and debt or a small business with personal money involved, the bank wants to make sure debt isn't too high and that the borrower has an investment in the business as well.
CASH FLOW/COVERAGE - These two C's are very similar in that they have to do with being able to make your payments. There are many different formulas banks use to calculate coverage ratios but for the most part the idea is to have as much cash after operating expenses as possible. If the bank doesn't feel you can make payments, they won't do business with you. It is also important to know that they will make adjustments to the balance sheet when figuring the ratios such as removing soft assets like loans to yourself.
CONDITIONS - There isn't much you can do about this C because it deals with the industry conditions. Banks will take the risk level in your industry into account when doing a deal. If you fall in a rough industry you will have to work harder in the other C's to still get the deal done.
COLLATERAL - The bank will look for assets that can be pledged against the debt. Having good collateral will help you get better loans at less cost.
