Banks don't just look at whether your business is profitable. They run a systematic assessment across multiple risk dimensions to decide whether to approve your loan, how much to lend, at what rate, and on what terms.
Understanding this assessment process helps you prepare a stronger application — and avoid common rejection triggers.
The "Five Cs" of Business Lending
Traditional banking uses a framework called the Five Cs. Lenders assess you across all of them:
1. Capacity — Can You Repay?
This is the primary question. Lenders examine:
- Net profit from tax returns (after all expenses)
- EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation)
- Debt Service Coverage Ratio (DSCR) — annual net income ÷ annual debt repayments. Banks typically want a DSCR of 1.25× or higher.
- Cash flow patterns from bank statements
2. Capital — What Do You Have?
Business equity and the owner's personal financial position:
- Business net assets (assets minus liabilities)
- Personal net worth of the director/guarantor
- How much equity you're putting into the deal vs borrowing
3. Collateral — What's the Security?
- Business assets (equipment, stock, debtors)
- Commercial property
- Residential property (most commonly used)
- Personal guarantee (the person behind the business)
4. Conditions — What's the Environment?
- Industry risk (construction, hospitality, and retail face higher scrutiny)
- Economic conditions
- Purpose of the loan and how it fits the business strategy
5. Character — Do You Pay Your Debts?
- Personal and business credit history
- Time in business (longer = more credibility)
- ATO compliance (no overdue lodgements or tax debt)
- Prior loan repayment history
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Common Rejection Triggers
Applications are declined most often due to:
- ATO debt or overdue lodgements — One of the biggest red flags. Clear ATO debts before applying if at all possible.
- Multiple credit enquiries — Applying to too many lenders in a short period damages your credit score.
- Low or declining revenue trend — Lenders want to see growth or stability, not a declining trajectory.
- Defaults or court judgments — Both personal and business credit file issues can trigger decline.
- Insufficient trading history — Under 2 years is often a hard wall for bank products.
- Industry type — Some lenders won't lend to certain industries regardless of financials.
What Lenders Want to See in Your Application
- 2 years' business and personal tax returns
- 2 years' ATO Notices of Assessment
- Last 6 months' business bank statements
- Current BAS statements (all lodged, none overdue)
- List of assets and liabilities
- Details of existing loans and commitments
- Purpose of the loan (specific, not vague)
The Difference Between Banks and Non-Banks
Banks use stricter credit policies but offer lower rates. Non-bank lenders (fintech, specialist) are more flexible on credit history, trading period, and industry — but charge more. Knowing which lenders suit your profile before applying saves time and protects your credit score.
Get your application pre-assessed before you apply
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