Any entrepreneur who has ever tried securing a loan knows what a challenging process it can be. Lending institutions need the assurance that the loan will be repaid in a timely fashion, which is part of the reason they may be hesitant to lend to small businesses that do not have a lot of assets.
So on what basis do banks make loans? Or in other words, what do they look for?
Although there may not literally be items on a checklist that bank loan officers cross off when looking over a loan application, there are some basic criteria that most ideal applicants should be able to show.
1. Sufficient Assets and Cash Flow
You need to prove that your small business currently has enough assets and collateral to withstand financial fluctuations while still being able to pay back the loan. You also need to be able to prove that your company’s cash flow is relatively solid and consistent. This will assure loan officers that you will likely be capable of paying back the loan when the time comes.
2. Reputation for Profit
A history of success is definitely helpful when applying for a loan. In other words, if you can prove that your past business ventures have been quite profitable, this will definitely aid you in your loan application.
Creditworthiness is one of the most important qualities for an entrepreneur to possess if he or she is to qualify for a bank loan. Perhaps you have already demonstrated an ability to pay money back because you have had success managing or owning a successful business in the past. Biz2Credit offers a BizAnalyzer tool that can help you determine your creditworthiness and what you must do to improve it. If you are completely new to the small business world, personal credit reports can show that you as an individual are responsible with money and timely in paying it back.
4. Goal-Oriented Mindset
You need to be able to explain to the loan officer exactly what the loan money will be used for, and exactly how you intend on paying the money back. A detailed business plan will make loan officers more confident in your ability to repay the loan.