Will the business create job for residents? Will the business provide access to healthy food, housing, education, childcare or healthcare? We want to know the whole story, not just what’s on paper. That’s what the 5th C is all about.
Banks look carefully at borrowers before they lend money, and often refer to the “4 C’s” which stand for Credit, Character, Capacity and Collateral. These are the primary indicators most lenders use to evaluate risk. And while the 4 C’s are important, Neighborhood Progress Fund believes there’s usually more to the story. For us, it’s all about Community Impact. We call this the “5th C” and it carries a lot of weight when we consider someone for a loan.
As an impact lending organization, flexibility is one of our top priorities. In addition to the standard “4 C’s” used to determine eligibility for a business loan, we rely heavily on the “5th C” — Community Impact. Our mission drives our decision-making process, and we often move forward with financing even if you are lacking in some of the following areas:
1
Credit Report
Although we don’t have a minimum credit score and seek to partner with entrepreneurs and businesses that struggle to qualify for traditional loans, we use the credit report as a component of our analysis. The credit report is used to evaluate how you have handled debt in the past.
2
Character of Management
In our experience, character of management is the foundation of a successful loan. The success of a business is dependent upon the qualifications and the experience of management and the principals behind the business. They are ultimately responsible for the use and repayment of borrowed funds.
3
Capacity to Repay
To evaluate your ability to repay the loan, we look at industry trends, the local business environment, basic operating and competitive position, financial position and sources of liquidity, and company financial structure. In addition, we review the last three years of financial statements (balance sheet, income statement, cash flow statement) to project the future performance of the company. These projections are the main source of information to indicate if there should be sufficient cash flow to repay our loan.
4
Collateral
Collateral is the cash and assets you pledge to secure the loan. The amount and quality of the collateral will give us the additional comfort to move forward with the loan. Not only do collateral assets generate cash flow to pay our debt service but they also provide a source of repayment if the loan does not perform.
5
Community Impact
Most importantly, we evaluate the impact your business will have on the lives of residents in their communities. We believe that housing, education, childcare, healthcare and healthy food access have the greatest impact on a community’s revival. In addition, we place a high emphasis on businesses that will create a large amount of jobs for residents. We are more willing to move forward with a transaction that is deficient in the standard 4 C’s if the impact on the community is undeniable.
Are you eligible to make an impact?
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