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Preparing for a Small Business Loan: The 5 C's of Lending

Preparing for a Small Business Loan: The 5 C's of Lending

Small business loans can be the key if you're dreaming of starting your own business or expanding your current operations. But navigating the lending process can be overwhelming, and it's essential to understand what lenders are looking for before you apply. 

That's where the 5 Cs of lending come in - character, capacity, capital, collateral, and conditions. These five factors can make or break your eligibility for funding. We’ll explore each component in detail, providing essential information and tips to simplify the loan application process and increase your chances of approval. 

Whether you're a seasoned entrepreneur or just starting, this guide will help you navigate the lending process with confidence and ease.


When securing a small business loan, the first C of lending, character, is crucial. It encompasses your background, experience, and reputation as a small business owner. Lenders want to see that you're responsible, trustworthy, and capable of managing and repaying borrowed funds. 

To demonstrate strong character, start with a well-crafted business plan that outlines your goals, financial projections, and other important information. A clean credit history, references from professional associates, and relevant industry experience or certifications are also essential. A business plan is a part of maintaining professionalism and transparency throughout your interactions with lenders, as it showcases your character in action.

While some entrepreneurs may possess good character, they may not always know how to express it. At Community Futures Central Alberta, we believe in the importance of character and offer training programs to help entrepreneurs develop traits like honesty, integrity, and responsibility. We work with our clients to ensure they have a solid business plan that showcases their commitment to their business and willingness to work hard to achieve their goals. As a result, you can present yourself as a trustworthy and responsible business owner, improving your chances of securing the small business loan you need to succeed.



The second C of lending, capacity, can seem daunting, but it is essential to securing a small business loan. Capacity refers to managing your finances and repaying borrowed funds. Understanding your financial situation and showcasing your ability to repay the loan is vital.

To showcase your capacity, prepare detailed financial statements, including cash flow and income statements, that outline your anticipated revenue growth and expense management. By showing lenders that you have a plan to manage your finances, you can increase your chances of securing a small business loan. A strong capacity demonstrates that you have the financial resources to support additional debt comfortably, ensuring you can generate enough cash flow from your business or personal finances to repay the loan.

At Community Futures Central Alberta, we understand that managing finances can be challenging. That's why we offer training programs designed to improve financial literacy and give entrepreneurs the skills to manage their finances effectively. We also provide access to business coaches who can help entrepreneurs develop strategies to increase their revenue and profitability, which can increase their capacity to repay their loans.



Capital, the third C of lending, is essential for securing a small business loan. It is a sign of commitment to your business and demonstrates to lenders that you are dedicated to your business's success and have a vested interest in its performance. Therefore, investing a significant portion of your money in your business is essential to improving your likelihood of getting a loan. It shows that you understand the risks and rewards of being an entrepreneur and are willing to stake your resources in your venture. Furthermore, having capital also reflects positively on your creditworthiness and can help you get a loan at a better rate.

Be prepared to provide details of your financial contribution to the business, including savings, investments, or personal assets. Also, communicate that this commitment is significant relative to your financial situation and showcases your dedication to making the business successful.



Collateral is the fourth C of lending. It is the asset or assets you pledge to secure your loan. Lenders often require collateral to ensure they have a fallback option to minimize risk in case the borrower fails to repay the loan. Having collateral makes your loan application more attractive to lenders, reassuring them that their investment is protected.

Identify assets that can be used to secure your loans, such as real estate, equipment, or accounts receivable. Be prepared to provide a detailed inventory of these assets, including their estimated value and ownership documentation.



The final C of lending, conditions, refers to the external factors and the specifics of the loan that could impact your ability to repay the loan. These factors include the economic climate, industry trends, and interest rates. You can improve your chances of securing a small business loan by addressing these conditions and demonstrating a solid understanding of the external environment that directly or indirectly affects your business.

Include an analysis of market trends, industry forecasts, and economic conditions in your business plan. Also, be prepared to discuss how you intend to navigate any potential challenges or uncertainties in the market. By understanding and addressing these conditions, lenders will be more confident in your ability to mitigate potential risks.



When it comes to buying a business or financing your small business, securing a loan can be critical to turning your dreams into a reality. That's where understanding the 5 C's of lending - character, capacity, capital, collateral, and conditions - can make all the difference.

At Community Futures Central Alberta, every business should have access to the funding they need to thrive. That's why we offer lending services to those who traditional banks or lending institutions may have turned down. We understand that the lending process can be intimidating, but our team is here to guide you every step of the way.

Our flexible small business loans are affordable, accessible, and tailored to meet rural and small business owners' unique needs. Whether starting a new venture, expanding your existing business, or investing in new technology, we can help you secure the financing you need to succeed.

Don't let a lack of funds hold you back any longer. Contact us today to learn more about our flexible small business loans and how we can support your business's growth. Take the first step towards a successful business today, and get in touch with us.

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Red Deer, AB  T4N 3X1
P: 403-342-2055


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