Debt financing is one option to consider when figuring out how to support your company. If so, you may wonder about bank loan money.
Any financial institution will first evaluate your company’s viability as a credit risk. They want to know if you can repay the full loan (debt + interest) on time.
Lenders look at a broad range of criteria to determine your solvency. The financial institution will also consider a narrower range of criteria. Some considerations are mandated by legislation or rule, while others are incorporated into their own policies.
The following factors will influence a bank’s choice to extend credit to you:
Money made and coming in
The financial institution wants assurance that you can pay back the loan plus interest by the due date. Therefore, you must present both past (where applicable) and future financial data showing success and cash flow production. Your credit application should be strengthened by these details.
Make sure the hypotheses (predictions) you use in your financial projections are well-founded.
The bank will probably question your projections for the company’s expansion if you ask for a loan from them.
Where can I find safety?
You’ll need to put up some kind of equity in order to get the credit.
Typical types of safety measures include:
- Actual Property
- Vehicles
- Equipment
- Structures, inventory, and context
- Receivables Accounts (your trade debtors)
The bank might also require personal assurance as a form of collateral.
Where will these funds be put to use?
The bank will want details on how current market circumstances are impacting your company.
Banks’ willingness to give will fluctuate across industries due to their varying risk appetites.
Before contacting a bank for a credit, it is wise to learn whether or not they have a strong risk propensity in your industry.
You should look into other institutions and alternative financiers if their risk tolerance is too low for your type of company.
Financial resources at your disposal
Loan approval may depend on a person’s reputation and assets. The bank might be wary of business lending to your company if you have a bad personal credit past.
Collateral
The bank may demand your personal assets as security if it determines that your company lacks sufficient collateral to secure the credit. A personal assurance is probably the bare least they’ll require.
If you meet all but one criterion, your enrollment may be denied. A bank or alternative provider will likely search for the same information, so it’s essential to present a straightforward and powerful plan.
Guaranteed Loans for Businesses
The bank might decide not to back you even if your company plan is sound if you don’t have enough collateral to back it up.
The government will provide an assurance to the bank to cover some of the debt for companies that have a solid plan but inadequate protection. The bank will decide whether to lend you money, but the government will cover some of the interest and fees if you fail.
If you use such a program to get business credit, the government will charge you in addition to the lender’s interest.
