Applying for Finance - The 5 C's

<<< Back to the Helping Businesses Source Finance Guide

When you come to AIB for bank finance, we will draw on our experience with SME customers and our knowledge of the business market. This is the background against which we will examine your business and your plans. As to the specifics of your credit application, we focus on five fundamental areas that we call "the 5 C's" which help us to arrive at a lending decision. It's worth giving some thought to how your business will stand up to assessment in each of these areas. This will help you assess your strong and weak points as they are likely to appear to AIB when assessing your credit application. Preparing backup plans or support for the weaker aspects of your business could make all the difference in accessing credit finance.

Character, Capacity, Capital, Collateral, Conditions

Here's what AIB looks for in each of the "5 C's"

Character

Good character is a basic prerequisite for any borrower. Honesty, integrity and reliability are the qualities that mean you will make every effort to repay your debt. In relation to your business, you need to be able to demonstrate that you are an effective manager with a good reputation. It's also important to be honest and upfront about your credit history and any business problems you may have had. How you resolved these will, of course, be helpful in determining how they effect your application.

Capacity

You will need to show how your business will generate sufficient cashflow to repay the credit facility you are seeking. Detailed financial forecasts must show how repayments will be generated. Beyond this, you will also need to explain your capacity to repay the credit facility if the business does not develop as planned. Other sources of income (such as investments), skills you could use to earn income, or the support of an earning spouse, could provide a sufficient backup plan.

Capital

Business capital is split between the equity (the money that the owners and investors have put into the business) and the debt (money borrowed from banks or other sources). Equity capital acts as a cushion to absorb first losses, while debt capital must be repaid to the lender however the business fares. Since debt capital also comes at a cost of interest, the more debt a business has relative to equity, the higher the level of risk. Start-Up Businesses potentially can be a high risk for lenders, so if you are seeking to borrow money for a new business AIB will, like most lenders, need to see that you have made a reasonable financial investment.

Collateral

Collateral is the security given to a lender for protection in case the business cannot repay the loan. It can be any one of a range of business and personal assets, including buildings, vehicles, machinery, land title and business debtors. If the business cannot generate enough cash to repay the credit facility, the lender may have recourse to the collateral. But for AIB, as for most lenders, recourse to collateral is always the last resort: the business must be the main source of repayment and so credit will only be given if the business is assessed as capable of repaying the credit facility. It is always advisable to seek independent legal advice before providing collateral against credit facilities.

Conditions

Conditions and trends in your sector and the overall economy are crucial factors in determining the success of your business. Opportunities or threats to your business can arise from external factors such as technology, competition, regulation and economic or social changes. You may not be able to control all these factors, but you must be aware of them and be prepared to respond to change. When you look for bank finance, you need to be able to give your assessment of the market and how your business will cope with potential changes in market conditions.

Chapter 2 - "Applying for Bank Finance - your proposal" >>>

Imprtant Regulatory Information

AIB Insurance Services Ltd is regulated by the Central Bank of Ireland.

Credit Facilities

Lending criteria, terms and conditions apply. Credit facilities are subject to repayment capacity and financial status and are not available to persons under 18 years of age. Security may be required.

Back to Top