Purpose – where the four Cs of credit worthiness converge
A strong purpose intrigues banks and helps businesses secure loans.
Every business exists to fill a void.
From startups to large corporations, every successful business brings something unique to the market or targets a specific niche.
We call that its purpose.
Essentially, your business’ purpose is the reason it exists. Purpose is a fundamental driver of business success, and it’s something every bank loves to see clearly understood and expressed in commercial loans.
For example, a specialized part manufacturer is a business with a strong and clear purpose. It does something few other businesses do and exists to serve a specific clientele and fill a specific void.
A strong purpose tells your story.
Aside from being an indicator of what niche your business fills, how does having a clear and demonstrable purpose help businesses when applying for loans?
Businesses with a strong purpose stand out. You know your business better than a bank ever will – but that doesn’t mean they don’t want to hear your story. If you can convey your mission and passion to them, it reflects well on your business’ character and reason for being.
With a clear purpose in mind, demonstrate the value your business brings to the table – which plays a significant role in any loan decision.
Purpose is a mix of many things.
Character, capital, capacity, and collateral – purpose isn’t tied entirely to any one of the four Cs of credit worthiness.
If your business is lacking in one of the Cs, it doesn’t mean it has a weak purpose, and vice versa. Instead, the four categories come together to constitute purpose. Generally speaking, if your business has a strong purpose, it also has good character, ample capital, solid capacity, and plenty of collateral.
However, that isn’t always the case.
A business with a less defined purpose should look to strengthen its collateral as much as possible. This helps banks to better determine the loan structure that makes the most sense for that business.
How can you identify a strong purpose?
Your business’ purpose is its story. To have a better idea of how to communicate that to a bank, look for how you help your customers or fill a niche.
What got your business started? What are the things you do best? How do you see your business growing in the near future?
The more clearly you can convey your passion for what you do, the better off you’ll be in loan discussions.
When considering your business’ purpose:
- Identify what void it fills and what makes it unique.
- Be honest, open, and passionate about what you do.
- Strengthen your four Cs as much as possible, especially collateral, if your purpose is less clear.
Note: This is one of five blogs breaking down the Four Cs and a P of credit worthiness – character, capital, capacity, collateral, and purpose.