Banks and other private lenders offer competitively low-interest rates so they convince more consumers to take out a business loan from them. If you need to borrow money, lenders will assess your business credit profile first, and here’s how they do it.
But because they advertise or convince you to apply for one does not mean you automatically get approved. If you need to borrow money, lenders will assess your business credit profile first, and here’s how they do it.
1) Business Credit profile
The very first thing a bank or any other moneylender will review is your credit standing. By running your credit report, they will see how good of a payer you are and identify your credit score.
They will also check payments history on your credit cards and other personal loans so it will be best to clean up blemishes before applying for a business loan.
2) Cash flow and outstanding loans
Next to your credit standing, lenders will review how much loan you currently have and any other outstanding debts under your name. Through this, they will determine whether your cash flow is sufficient to settle your present obligations as well as new loans.
Be on top of your credit by using this Credit Calculator to determine your “Monthly Payment”, “All Interest Payments” and “Monthly Interest Payments”:
3) Company assets
When taking out a business loan, banks and other financial institutions will take a look at the assets owned by your company. Particularly tangible properties and receivables. This is a huge factor because it serves as collateral in the event of a payment default.
4) Number of years in operation
Moneylenders favor businesses that have been in operation for several years. Lenders are more likely to approve your loan if your firm has been in business for about five years or more.
Another factor lenders consider is the number of investors and the total amount invested in your company. Even if you’re company is just a start-up firm, you may still get approved for a business loan if you have capital and strategic investors.
6) Business plan
Creditors will feel more secure lending you money if you have a solid business plan that clearly states where your business would be in the next few years. Therefore, make sure to prepare one and present it along with your application form.
How To Get A Business Loan For New Business Owners
New aspiring business owners usually seek out business loans to fund their initial investment. The barrier of entry usually involves the needed capital. With that being the case, anyone who hasn’t yet experienced taking out a business loan needs to read the following tips.