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What Factors Do Lenders Consider When You Apply for a Business Loan?

Two men speaking with a banker when they apply for a business loan

Considering a business loan? Before you start looking to apply for a business loan, it will help to understand what banks and other business lenders are looking for when they consider a loan application. Besides wanting to minimise risk to themselves, lenders are legally required to make responsible lending decisions when considering loan applications. This is especially true for banks which have stricter compliance requirements than other lenders, such as online lenders. So don’t feel you’re being singled out for scrutiny – banks and other lenders do this to everyone who applies for a business loan.

Broadly speaking, lenders consider what’s called the 5 Cs of credit when deciding on whether to approve a business loan. 

What are the 5 Cs of credit considered when applying for a business loan?

The five C’s are character, collateral, capacity, capital and conditions. Each of these plays a role in assessing your loan application when you apply for a business loan.


To understand your character, lenders examine your past activities, including your loan repayments, savings, how long you have been in business and your credit score. Factors that are considered when you apply for a business loan are whether you have repaid debts on time, your ability to save, the strength and stability of your income and cash flow, and any defaults, bankruptcies or other legal actions against you. If you have had difficulties with any of these in the past, it will reflect negatively on your ability to repay any future loans.

Another thing to consider when you apply for a business loan are any ATO debts and payment plans you might have. Some lenders, especially banks, will reject your business loan application if you owe money to the ATO, even if you have a payment plan in place. Before you apply for a business loan, consider how your character stacks up against any of the factors outlined above.


Collateral is required for secured loans. It includes any assets you have for securing your loan in case of default. This can include residential or commercial property, land, vehicles and other personal possessions. The lender will consider the suitability of your assets as collateral, including the location, condition and the ability to sell the assets if needed. You will want to consider the value, condition and liquidity of your assets before you apply for a business loan.

Note that unsecured loans don’t require collateral but usually have a higher interest rate.


When determining your ability to repay, lenders will look at several factors, such as your income, existing debts, living expenses and the number of dependents you have. Before you apply for a business loan, consider your ability to repay, the stability of your revenue and contingency plans if your situation changes.


When assessing your capital, lenders consider your overall financial position, including the types and liquidity of your assets and nature of your liabilities. When you apply for a business loan, lenders look at the strength of your financial position and whether you could liquidate your assets in time to meet your obligations if conditions change.


These are the lender’s terms for providing the loan. They include the repayment schedule, the interest rates and fees, anything that needs to happen before the loan is granted and during the life of the loan. Ask yourself whether you will be able to meet the conditions of the loan outlined and what will happen if you are unable to meet them.

Questions you will need to answer when you apply for a business loan

Lenders want you to answer certain questions when you apply for a business loan. These include:

  • What’s the loan for?
  • What’s the amount you want to borrow?
  • When do you need the money?
  • How long do you need the money for?
  • How will you be able to repay the loan?
  • What’s the risk in lending you money?

What if you don’t get approved for a business loan?

After going through all the steps to apply for a business loan, it can be frustrating if you are rejected, especially if you’ve been waiting months for an answer and have completed what seems like reams of paperwork.

Remember that there are many options available when you are ready to apply for a business loan. An unsecured online loan is one alternative to a traditional business loan from a bank. Unsecured business loans are sometimes the best option for a business that doesn’t have many assets or a long track record. With Moula, the application only takes 10 minutes to complete and we’ll give you an answer within 24 hours. If approved, the funds will be transferred immediately to your account.


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