Are you SET to be an entrepreneur?  Five Tips for Achieving Credit-Readiness.

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Last month, I had the pleasure of leading a group of women entrepreneurs through the Business Smart Workshop created by the US Small Business Administration (SBA).  This info-packed program was hosted by Coastal Women’s Ventures at the YWCA Lower Cape Fear in Wilmington, North Carolina.

Part 1 of the program, the “READY” module, focused on what a startup business owner must do to get organized and ready to start a business. To catch up on the discussion, read my previous article.

Part 2 of the program, the “SET” module, focused on the fundamentals of business financial literacy, traditional and non-traditional funding, and business loan applications.

Common sources of business funding include:

  • Savings

  • Sale of equity in your business to investors

  • Gifts or loans from family and friends

  • Money borrowed personally, such as a home equity line of credit or a credit card

  • Money borrowed as a business loan

The first step towards a business loan is to talk to a loan offer at your bank.  

Banks are in business to make loans, but they must do so profitably and in compliance with laws and regulations.  Other sources of business loans include credit unions, microlenders, community-based lending programs, community advantage (CA) lenders that make loans under a special SBA loan program, online lending platforms and other local programs in your community.   

Microloans are usually less than $50,000.  Microlenders often have more flexible credit requirements, pay more attention to the character of the business owners, work more closely with their borrowers, may provide technical help and advice to borrowers, and understand the conditions in the local community and how they may affect businesses operating there.   

The SBA’s microloan program relies on community-based organizations to provide small loans to people who want to start or grow their business.  While the maximum loan size is $50,000, the average loan amount is $13,000. Loan funds can be used for working capital, equipment, and furniture.  Loan funds cannot be used for real estate or to repay existing loans.

No matter who you ask to lend you money, the lender will be looking for:

  • A business owner who knows the business, has the ability to run it well, and is willing to work hard to make it succeed.

  • A business that is financially sound or, if it is brand new, appears to have the ability to make enough money to pay its bills, give its owner an income and pay back the loan.

  • Collateral to cover at least part of their lending risk.

  • An investment in the business from its owner.

Lenders also consider what are commonly known as the Five C’s of Credit:

  1. Character

  2. Capacity/Cash Flow

  3. Collateral (Guarantees)

  4. Capital/Contribution

  5. Condition

CHARACTER refers to your personal reputation and the general impression you make on your lender.  Are you a person of integrity? Have you lived in your community for a long time? Do you have a bank account with the lender?  Have you ever had a loan from this bank or another lender? What’s your credit score? Do you pay your bills? Do you have business or work references?  Do you have experience in this type of business? Do you have experience managing or running a business?

CAPACITY/CASH FLOW refers to whether your business makes enough money to pay its bills, including the new loan.  This is often considered the most important of the 5 C’s because it measures your ability to repay the loan. If you are just starting your business, a lender will rely on your business plan and your projections of revenue and expenses.  If you have an existing business, a lender will look at how much money you have made in the past, usually by asking for financial statements and tax returns for at least two years.

COLLATERAL or guarantees refer to something of value that you own or will buy with money from the loan that can be pledged as security for the loan.  Most lenders will also often require an entrepreneur to personally guarantee the loan. This means that the business owner is responsible for the loan even if the business fails, regardless of the form of legal entity of the business. Do not take personal guarantees lightly!

CAPITAL/CONTRIBUTION refers to the business net worth.  Capital is what the business owns (assets) less what it owes (liabilities).  Lenders want to see that the business owner has financial risk if the business fails.  A lender expects a business owner to have invested in the business, also known as “skin in the game”.

CONDITION refers to the terms under which a lender will make a loan.  Conditions include the loan amount, interest rate and use of the loan.  Lenders also consider how well people are doing in your community and how well your business’ industry is doing.                                      

Asking for a loan can be scary, but you can improve your chance of success by being well-prepared and telling your story well. Have a written business plan. Keep in mind that the only thing a potential lender knows about your business is the story that you tell. Help them get excited about your dream and believe that you will succeed.

Download the free checklist, How to Prepare a Loan Request to get ready to approach lenders.  

One word of caution as you enter the world of business loans.  Not all lenders operate fairly. Watch out for the following:

  • Receiving a loan offer you didn’t apply for

  • A lender who promises you loan approval no matter what your credit history or credit score

  • Being rushed to sign papers

  • High interest rates and fees

  • Loan repayment terms that do not seem fair or appropriate, including balloon payments and penalties for early repayment

  • Blank spaces in documents

Do not sign anything until you have consulted with a lawyer or trusted friend and fully understand the terms and conditions of the loan you are being offered.


In summary, follow these five tips to be a credit-ready entrepreneur:

  1. THINK LIKE A LENDER

    • If it was your money going to support someone else’s dream, what would you want to know?

  2. BE PREPARED

    • You should be able to answer almost every question your lender asks

  3. KNOW YOUR BUSINESS PLAN AND NUMBERS

    • You must know your business plan and financial data.  Never rely on someone else to speak for you.

  4. FULL DISCLOSURE

    • Address any situations in your business that may appear to be a weakness before the lender raises a question.

    • Answer questions honestly.

  5. BE AN ENTHUSIASTIC STORYTELLER

    • Make sure that you have a good story to tell about your business, then tell it with enthusiasm.

Stay tuned for my next blog post where I’ll dive into Part 3 of the program, the “GO” module and discuss additional financing resources and opportunities for technical assistance.

Jennifer Turnage is an entrepreneur, business coach, speaker, and author. As the Cofounder and CEO of myBeeHyve, she combines her experience from multiple tech company exits with her mission of empowering individuals to achieve financial independence through entrepreneurship. Connect with her on  Facebook, LinkedIn, Instagram, Pinterest or Twitter for support on your entrepreneurial journey. Download the free myBeeHyve app in the Apple or Google Play app stores to manage your prospects and customers with ease.


Coastal Women’s Ventures is a collaborative program with the Carolina Small Business Development Fund focused on creating and supporting small business opportunities for women entrepreneurs through business coaching, mentoring, small business education, and connecting participants to loan capital.